Employers warn of crisis as Reeves increases NI contributions

Bosses lash out at Chancellor’s plans amid fears changes will lead companies to create fewer jobs and give out smaller pay rises

Corporate Britain has sounded a warning about hiring freezes and pay cuts after emerging as the biggest loser of a £40bn tax raid.
Bosses lashed out at plans to increase employers’ National Insurance by 1.2 percentage points to 15pc from April. As part of plans to raise £25bn, the Government is also lowering the level at which they have to start paying it.
Pubs, restaurants and cafes which rely on part-time staff could see their tax bills rise by a collective £1bn as a result of the changes, UKHospitality warned, as firms will have to start paying National Insurance Contributions (NICs) for staff who earn more than £5,000 a year.
It is feared that the changes will ultimately lead companies to create fewer jobs and give out smaller pay rises.
Brent Hoberman, the founder of lastminute.com, said the move will “make people think more about hiring more people and where to hire them”.
He added: “We are not at French levels yet, but it is a combination of things with the new employment laws that will need to be watched.”
Luke Johnson, the chairman of bakery chain Gail’s, added that this “clearly is a tax on jobs, which is a bad idea and hardly the ingredient that will spur growth”.
“It particularly affects industries like hospitality and retail that have a lot of more modestly paid people. It will be passed on in increased prices and or fewer jobs or less pay increases in the future.”
Tom Clougherty, the Institute of Economic Affairs’ executive director, called it a “fantasy” to claim that the raid on employers wouldn’t affect working people.
The Office for Budget Responsibility (OBR) said NIC rises will “reduce labour supply by around 50,000 average-hours equivalents” while also causing pay to stall as companies pass on the cost of the higher rate.
Top Labour donor Dale Vince said that although he acknowledges that businesses have “borne the brunt” of the tax raid there has been too much whining in corporate circles. He advised bosses: “Don’t bleat, just knuckle down and let’s grow the economy.”
Although Rachel Reeves promised that there would be protections for some small business owners from the NIC rise, meaning that 865,000 employers now won’t pay any National Insurance at all next year, other small businesses were left in “shock” by the shake-up.
Ben Keely-Whiting, who runs WH Pubs in Kent and employs 150 people, said the rise in minimum wage and NICs “has got to be the hardest thing that’s ever going to hit hospitality”.
“I’m a bit in shock to be fair, I’m going to cry into my beer,” he said. “We often give youngsters their first job – [this] is like an apology for employing people. We’re being penalised. This is going to impact us more than anything ever.”
The boss of one household retail giant, who did not want to be named, said the move means that his company’s employment costs will jump by over 10pc next year when combined with the minimum wage rise.
Dom Hallas, executive director of industry group Startup Coalition, said the National Insurance rises will also have a “significant impact” on cash-strapped start-ups and their ability to expand.
Christopher Groves, a partner at law firm Withers, argued that it was “clear that the Chancellor has as limited a definition of ‘business’ as she does of ‘working people’, with a limited selection of reliefs and tax reductions providing window dressing for a Budget that significantly increases the tax burden on business”.
The backlash came as the Government vowed to address a “major source of concern” for many high street retailers as it plots an overhaul of business rates.
The Chancellor said she would be extending business rates relief for retail, hospitality and leisure properties, although the discount would be smaller than it currently is, and then would be permanently reducing their tax bills from 2026.
She said this change would be funded by higher rates for “the most valuable properties” including warehouses used by online giants.
It follows pledges by Labour in its election manifesto to replace the business rates system with one which was “fairer for bricks and mortar businesses” in an attempt to revive the high street.
However, retail insiders shrugged off the announcement, saying the concession was “very minor and falls far short of any serious attempt to tackle the problem of city centres and high streets”.
Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC), argued that in recent months “sentiment has been challenged by doom and gloom in Westminster – we would have liked more of a focus on growth.”