National Insurance fears spark business backlash

Businesses have hit out over a potential rise in National Insurance paid by employers, arguing it will make hiring staff and creating jobs harder.

Leading business groups in the UK raised concerns over the potential tax rise – something Prime Minister Sir Keir Starmer failed to rule out in an interview with the BBC on Tuesday.

Some have warned that a hike in National Insurance on employers would “hobble” economic growth, while one lobby group claimed it would “hammer” the hospitality sector.

Labour has said that it is “pro-business” and wants to boost economic growth but Sir Keir has cautioned that the Budget on 30 October is “going to be tough”.

The CBI, one of the UK’s leading lobby groups which claims it speaks for 170,000 firms, has suggested companies have stalled taking on new workers and investing as they await the government’s tax and spending plans.

Rain Newton-Smith, chief executive of the CBI, told the BBC’s Today programme that employers would see a National Insurance rise as a “difficult move” which would “increase the cost of taking someone on”.

This is on top of increases in the National Living Wage and in energy bills in recent years, she said.

Kate Nicholls, chief executive of UK Hospitality, said any rise in National Insurance would “particularly hammer sectors like hospitality, where staffing costs are the biggest business expense”.

Alex Veitch, director of policy at the British Chambers of Commerce, conceded that the government had to make “difficult decisions” in the Budget, but he warned that raising employer National Insurance contributions would “simply hobble growth and lead to businesses having less money to invest in their staff”.

At this stage, it remains unclear exactly what aspect of National Insurance the government could increase in relation to employers.

Firms pay the levy on the earnings of people on their payroll, but there is also speculation the government could introduce National Insurance on employer’s contributions to pensions.

Some questioned whether Labour will renege on its manifesto promise not to raise taxes including National Insurance.

On Monday, Chancellor Rachel Reeves said Labour’s election pledge not to increase National Insurance on “working people” related to the employee element, as opposed to the sum paid by companies.

But Mr Veitch said: “Firms are run by working people.

“Nearly all UK companies are small, with many family-owned, and they are the anchors in our local economies.”

Craig Beaumont, executive director at the Federation of Small Businesses, said: “You don’t get to a pro-small business Budget without the government honouring its cast-iron manifesto commitment to not increase National Insurance contributions, including on small employers.”

He added a rise in National Insurance would “make every job in all our local communities more expensive to maintain”.

Speculation is gathering about what Labour will announce in its first Budget in almost 15 years at the end of this month.

The chancellor claims there is a £22bn “hole” in the public finances and that some taxes will be raised.

National Insurance contributions are the UK’s second-largest revenue raiser behind income tax. It is paid by workers and the self-employed on earnings and profits, and by employers on top of the wages they pay out.

Changes to the tax can be introduced – and generate cash – quickly, within weeks of a Budget through digitalised payroll systems.

Employers pay National Insurance of 13.8% on a worker’s earnings above £175 per week.

The Institute for Fiscal Studies (IFS) think tank told the BBC that HMRC has estimated that increasing the rate of National Insurance paid by employers by one percentage point to 14.8%, for example, could raise as much £8.5bn per year in the short term.

Isaac Delestre, an economist at the IFS, said the forecast does not take into account the impact increasing National Insurance could have on the amount the government generates from other taxes, such as income tax.

For example, employers could restrict wage rises, meaning employees would pay less on their individual National Insurance contributions and income tax.

If businesses decided to absorb the extra cost, their profits might be lower and therefore, the amount they pay in corporation tax could be less.

Mr Delestre said the situation for the government around potentially raising National Insurance was “quite delicate”.

The government could also decide to introduce a National Insurance levy on the contributions employers pay into workers’ pensions. Currently, this is tax-free.

The IFS said the creation of a subsidy for employer pension contributions of 10% could raise around £4.5bn per year.

But Alice Haine, personal finance analyst at Evelyn Partners, said such a tax hike could have “unintended consequences” as businesses might then “choose to reduce headcount or stick to the auto-enrolment minimum for pensions to cut costs”.