When the Chancellor steps up to deliver the Budget Statement on 26 November, she will do so against a backdrop of deep political and economic uncertainty and persistent pressure on the public finances.

She will also do so at a time when the UK labour market is showing worrying signs of decline, which if they were to continue would further undermine the public finances and wider economy, as well as the lives of workers and employers alike.

Having seemingly stepped back from a ‘manifesto busting’ decision to raise general taxation, the Government’s room for manoeuvre to meet its own Budget rules (now and into the future), sustain investment in public services, and support economic growth, is highly constrained.

But even within this challenging environment, there are steps the Chancellor can take to maximise the impact of key legislation, existing spending commitments and the Government’s own strategic reviews of the last 18 months. Taking these steps could improve living standards and drive growth during the remainder of the Parliament.

1. Fast-track funding for employment support and connect to job creation plans to reduce the risk of long-term unemployment

Although unemployment at 5% remains low by historical standards, the direction of travel during 2025 is of concern. Unemployment has risen over the past year to 1.79 million people, while the level of vacancies has declined – meaning it is becoming increasingly competitive for those who have fallen out of work to return.

This is beginning to be reflected in the number of people who have been out of work for more than 12 months, which has begun to creep upwards too. Coupled with stubborn near record levels of health-related economic inactivity, rising levels of young people who are not in employment, education or training and over a decade of stagnating real-terms wage growth, these trends paint a picture of a labour market that is not delivering for workers, employers or the economy.

Figure 1: Unemployment highest since the pandemic (Dec-Feb 2021)

Source: Work Foundation estimates using ONS (11 November 2025) dataset A01 Table 1: Labour Force Survey Summary: People by economic activity for those aged 16 and over.

This Budget should therefore ‘fast-track’ existing funding for additional tailored employment support, particularly for those at risk of long-term unemployment or facing multiple barriers to work. This funding should be harnessed to ensure local trailblazer programmes can scale up what is working, as well speeding up the roll out of bespoke, high-quality, person-centred programmes that help individuals to find secure, well-paid roles – not just ‘any job’.

The Government should also act to extend and strengthen their ‘Youth Guarantee’, ensuring support is offered to all 16-24 year olds, and that it is offered long before they have been out of the labour market for 18 months. And the Chancellor should seek to go further on driving the creation of more secure and flexible job opportunities across the country. Last month it announced plans to create 400,000 jobs in clean energy generation by 2030. Adopting a similar approach across other areas of its modern industrial strategy could help meet employer demand and ensure those looking for work are able to access it.

2. Provide the necessary resources to address health related economic inactivity

With nearly 2.8 million people still out of the labour market due to ill health, the Government should also commit resources for the current spending round to realise the potential of the Mayfield Review.

The Review has outlined a clear roadmap for increasing retention in the workforce when people fall ill and yet a number of its substantial recommendations – such as steps to boost occupational health provision – are not slated to be introduced until the end of the Parliament.

Without specific funding for the first phase of action, momentum behind this agenda could yet wane. Funding should therefore be committed for the current spending period to help employers evaluate and scale up innovative practices on workforce retention. This needs to facilitate knowledge sharing across ‘vanguard employers’ and incentivise other employers to adopt new approaches in the years ahead.

Given how challenging it is to support individuals who have become economically inactive due to ill health back into the labour market, stemming the flow of people leaving in the first place is critical. Without backing these reforms with the necessary resources now, Government is unlikely to see a reduction in levels of health-related economic inactivity by the end of the Parliament.

3. Resist returning to welfare cuts that would harm jobseekers, workers and undermine long-term growth

Alongside boosting programmes to support people to enter and remain in work, the Chancellor also faces pressure to slow or reduce spending on welfare. But returning to their previous proposals to make immediate welfare cuts would risk making things worse for disabled people, those with long-term health conditions and jobseekers more broadly.

Cutting access to health-related benefits risks pushing people into jobs that are inappropriate, unstable or unsafe. This could worsen their underlying conditions, fuelling further cycles of unemployment, and push individuals into poverty. Such an approach also stands to place additional strain on the NHS and local services, exacerbating pressures the Chancellor can ill afford to ignore.

The Government’s ambition should instead centre on supporting more disabled people to work, which, if done well, will reduce the welfare bill and cut the disability employment gap over the long-term. This includes through the creation of good and inclusive jobs, and supporting the roll out of flexible working models such as remote working that enable more disabled people to access employment.

4. Resource the employment enforcement system to protect workers’ rights

While the Government’s Employment Rights Bill may be enduring a spell of legislative ‘ping pong’ between the House of Commons and House of Lords at the moment, it is nevertheless expected to become law in the coming months. That will mean new obligations for employers to provide additional rights including to guaranteed hours and job flexibility. But these changes will only be as effective as the system that enforces them.

For the new framework to deliver real improvements for workers, the new Fair Work Agency must be properly resourced from day one. The Chancellor should use her Budget statement to commit to long-term, multi-year funding that enables it to focus on the sectors where poor-quality and insecure work are concentrated, such as retail, social care and hospitality. These sectors employ millions of workers who are disproportionately exposed to erratic hours, low pay, and weak progression pathways and face many barriers to individually exercising their rights in the workplace.

Alongside this, the employment tribunal system urgently needs additional investment. Backlogs in the system already leave workers waiting months for their cases to be heard. This delays justice and deters workers from exercising their rights at all. If newly strengthened rights are to be meaningful, the infrastructure that underpins them must be modern, accessible and adequately funded.

This could be the Government’s final chance to kick start its agenda

Accepting that the Chancellor’s ability to make a series of new, eye catching and expensive commitments is likely to be limited, Rachel Reeves can nevertheless use her Budget Statement to maximise the impact of existing commitments and focus additional spending on addressing the big challenges facing the UK labour market.

While tough choices on tax and spend inevitably lie ahead, supporting more people to enter and remain in secure and well-paid employment will be key to any successful drive to boost economic growth in the future, and must remain at the centre of the Government’s agenda.

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