A new tax hike on employer National Insurance contributions (NICs) is set to cost workers up to £11,000 over the next five years. This increase, which took effect on April 6, has sparked widespread concern about the potential negative impact on workers’ wages across the country.
Research indicates that the average employee could be nearly £3,000 worse off by 2030 due to lower real wages. As businesses face higher costs, the burden of this tax hike is expected to fall heavily on employees, with fears growing that this could worsen the ongoing cost of living crisis, according to GB News.
Impact on Workers’ Wages
The new analysis conducted by the Liberal Democrats reveals that the burden of the increased NICs will largely fall on employees, with lower real wages expected. The rise in the NICs rate from 13.8% to 15% aims to generate an additional £25 billion annually for the Treasury.
However, concerns are mounting that this could dampen wage growth across the country. In total, the rise in NICs is projected to hit firms with a £25.7 billion burden by 2029/30, with about £19.5 billion of that amount being passed on to workers through lower real wages.
This translates into an average loss of £470 per employee in the coming year.The research highlights significant regional variations in the impact of the NICs increase. In some of the UK’s wealthiest areas, the effect will be most pronounced.
For example, in Kensington and Chelsea, employees could see an average loss of £10,800 by the end of the decade. Around 60,043 payrolled employees in the London borough are forecast to be hit by a combined £649 million due to the NICs rise.
Other areas such as the City of London (£10,469), Westminster (£8,353), Camden (£6,781), and Elmbridge (£6,635) are also expected to face significant reductions in wages. In all local areas, employees are forecast to be at least £2,100 worse off by the end of the decade.
Business Concerns and Potential Risks
Business leaders have raised alarms about the potential risks of the NICs hike, particularly for smaller firms. The increase in employer NICs could lead to higher costs for businesses, with some warning that the rise could even force companies to close. The government’s plan to increase tax revenue could have unintended consequences on the stability of businesses and job creation.
Government’s Response and Ongoing Debate
Despite the warnings, the Treasury has downplayed the findings, stating that it does not recognise the research figures. A Treasury spokesperson emphasised that the government’s priority is to improve living standards, pointing to measures like the increase in the national minimum wage and the extension of the fuel duty cuts.
The spokesperson also assured that no increases were made to the basic, higher, or additional rates of income tax or employee National Insurance.
We do not recognise these figures. Getting more money in working people’s pockets is a priority for this Government and our Plan for Change means living standards are already growing at their fastest rate in two years – The spokesperson said.
However, critics remain skeptical. Liberal Democrat MP Daisy Cooper, the party’s Treasury spokeswoman, called the government’s stance a “deception” and argued that workers will be the ones bearing the brunt of the tax increase.
The Chancellor is risking an epidemic of boarded-up shop fronts and household finances taking another battering in the midst of a cost of living crisis – she said.
These figures lay bare the grim reality of the Chancellor’s jobs tax. For the Government to pretend that this tax hike will not impact people’s pay packets is a complete deception.
Cooper further warned,
It is employees and our high streets that will pay the price for this growth-crushing policy.
