British employers have expressed concerns that raising employer national insurance contributions in the budget could make it harder to hire people and give pay rises, which would hurt businesses like pubs, hotels, and restaurants.
Sir Keir and Chancellor Rachel Reeves haven’t ruled out this increase in the 30 October budget, as they try to fix a £22bn gap in public finances caused by the previous Conservative government.
Concerns Grow Over Potential Tax Increases on Jobs in Upcoming Budget
The head of UK Hospitality, which represents pubs, bars, restaurants, and hotels, said this would be like putting a tax on jobs.
According to Kate Nicholls, the group’s chief executive, “An increase would particularly hammer sectors like hospitality, where staffing costs are the biggest business expense.”She added that hospitality businesses are much less able to stomach price hike, when they’re already managing increases in other areas including wages, food, drink and energy, as reported by The Guardian.
Sir Keir Starmer refused twice on Tuesday to rule out raising employer national insurance contributions in the upcoming budget, saying Labour’s promise was not to increase taxes on working people.
His comments came after Chancellor Rachel Reeves suggested on Monday that an increase was on the table for the end of October, mentioning that business leaders would understand the need for such decisions.
Speaking to the BBC from Downing Street, the prime minister stated, “Labour is very clear in the manifesto that we wouldn’t be increasing tax on working people,” pointing to income tax and national insurance. He added that this promise was not just in the manifesto but was repeated throughout the campaign, and they plan to keep these commitments.
He acknowledged that the budget would be challenging, saying, “It’s going to be a budget that’s going to be tough, of course,” but the main focus would be on rebuilding the country and ensuring the economy grows. He connected this with the recent investment summit, saying that the money coming in would be a real game changer.
Fears Rise Over National Insurance Hikes and Job Losses
Paul Johnson, the head of the Institute for Fiscal Studies, said on Times Radio that increasing employer national insurance contributions would break the promise made in the manifesto, which clearly says they will not raise national insurance rates.
Rain Newton-Smith from the Confederation of British Industry also criticized this idea. She said it could make it harder for businesses to create jobs and support public services.
The British Chambers of Commerce, which represents small and medium-sized businesses, is worried too. Jane Gratton, their deputy director, said that companies are already facing higher costs from the government’s new employment rules.
If the government adds national insurance on employer pension contributions, it could raise up to £17bn a year. A 1% increase in regular employer national insurance could bring in about £8.5bn.
Recent government data showed that the job market in Britain is weakening, with slower pay growth.
Rob Morgan, the chief investment analyst at Charles Stanley, a wealth management firm, warned that an increase in employer contributions could cause bosses to hold back on wage increases. They may do this to manage the higher costs of paying their staff.
He also stated: “With inflation still not entirely snuffed out this could ramp up the cost-of-living pressures on working families.
“However, the effects are not clear cut. Employers consider the total cost of an employee, which includes employer NICs and pension contributions. If these were to increase it could lead to businesses restricting new hires, limiting pay rises or scaling back pension payments. Yet some may instead look to pass these costs on in terms of higher prices.”
Before the July election, Rachel Reeves and Keir Starmer promised voters they wouldn’t raise the main taxes on working people, including income tax, value-added tax, and national insurance.
The Conservatives argue that increasing employer national insurance contributions would break this promise.
Mervyn King, the former governor of the Bank of England, suggested that Reeves should ignore Labour’s “irresponsible” promise and raise national insurance for workers in the budget.
