Firms say National Insurance hike will cost jobs; call for Employment Allowance rise

Prime Minister Boris Johnson, Chancellor of the Exchequer Rishi Sunak, and Health Secretary Sajid Javid attend a news conference in Downing Street on September 7, 2021 in London, England. (Photo by Toby Melville-WPA Pool/Getty Images)

Business organisations criticised Prime Minister Boris Johnson’s plans to increase taxes to pay for health and social care reform, saying they added to the burden on firms struggling due to the Covid-19 pandemic and would cost jobs.

Johnson set out plans on Tuesday to raise taxes on workers, employers and some investors.

The announcement received a cool reception from businesses, who were asked to pay a 1.25 percentage-point increase to National Insurance. The tax increases also included a 1.25 percentage point rise in dividend tax rates which stands to affect business owners and investors who rely on dividend income.

“Businesses strongly oppose a rise in national insurance contributions as it will be a drag anchor on jobs growth at an absolutely crucial time,” Suren  Thiru, head of economics at the British Chambers of Commerce, said.

“This rise will impact the wider economic recovery by landing significant costs on firms when they are already facing a raft of new cost pressures and dampen the entrepreneurial spirit needed to drive the recovery.”

Lord Bilimoria, CBI President, has also warned that the National Insurance increase will directly hurt a business’s ability to hire staff at a time they are fighting crippling labour shortages.

“After all that business has gone through during the pandemic and the fantastic government support that followed, now is not the time for tax increases.  It’s time to stimulate investment and growth in the economy,” he said.

“Government must be wary of heaping further pressure on businesses who will be central to the recovery, particularly by making it more expensive to recruit.”

But the government said it was right that businesses should make a contribution given that they benefit from the health and social care system via their employees. Big businesses would bear the largest burden of the tax rise, Johnson said.

A government document published alongside the announcement said 70 per cent of the money raised from businesses will come from the largest 1 per cent of companies and around 40 per cent of businesses would not be affected at all by the levy.

“Those earning more pay more and larger businesses also contribute,” Chancellor Rishi Sunak said on Twitter.

However, Federation of Small Businesses (FSB) said the rise in National Insurance contributions and the dividend tax will be a “hammer blow” for small firms.

“These hikes will have business owners and sole traders feeling demoralised at the point when they’re trying to recover from the most difficult 18 months of their professional lives. For those thinking about starting up, they send completely the wrong message,” Mike Cherry, FSB national chair, said.

“This regressive levy hits employers and sole traders without meaningful regard for how their business is performing. And this increase will stifle recruitment, investment and efforts to upskill and improve productivity in the years ahead.”

Cherry called for an increase in the Employment Allowance to mitigate the effects.

“It’s extremely disappointing to see the government undermining the good work it did last year in raising the Employment Allowance to provide some protection for small employers. This move marks an anti-jobs, anti-small business, anti-start up manifesto breach,” he said.

“The government should now increase the Employment Allowance to mitigate the damaging impacts of these hikes on the small firms that make-up 99 per cen of our business community.”

Manufacturers’ group Make UK said the measures would hinder Britain’s recovery from its worst economic slump in more than 300 years in 2020.

“Economic history tells us that job cuts are most likely when the economy starts to open again after a downturn because firms need the capital to reset,” said Chief Executive Stephen Phipson.

“After witnessing large-scale redundancies at the height of the pandemic and the plug being pulled on the furlough scheme, government should be putting in place measures to protect jobs and incentivise recruitment. An increase to NI would have the opposite effect”.