National Insurance Increase to Cost Businesses £3.5bn

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National Insurance Increase to Cost Businesses £3.5bn

Economists and business lobbyists have warned that increasing national insurance will lead to a reduced employment rate and lower wages.

The government’s 1.25 per cent increase in national insurance will costs businesses up to £3.5bn to match employee contributions, economists have warned.

The Institute for Fiscal Studies has estimated that if the NI tax increase generates £10bn of additional revenue, then this will result in businesses needing to find an extra £3.5bn.

The self-employed will also be affected by the NI rise, although they already make lower contributions.

Research fellow at the Institute of Economic Affairs, Professor Len Shackleton, has commented that employer national insurance is a “crude payroll tax” which discourages lower-paid employment and in turn leads to lower wages for workers.

Craig Beaumont of the Federation of Small Businesses told the Daily Telegraph: “Hiking the jobs tax on employees and employers would make it more expensive for businesses to create and maintain jobs.”

Mike Cherry, chairman of the FSB, told the newspaper: “This regressive levy is yet another outgoing for small businesses and sole traders to worry about against a backdrop of spiraling input prices, supply chain disruption, a deepening late payment crisis, rent arrears, rates bills returning, skills shortages and emergency loan repayments.”

Helen Miller, who is deputy director of the Institute for Fiscal Studies, has also commented that workers’ wages will likely go down when employers pass on extra costs.

Miller said: “Over time, the fact that employers have to pay higher employer NICs means they won’t be able to offer as much in terms of wage increases. Therefore, eventually, it will be employees who are bearing the cost of employer NICs.”

An announcement from prime minister Boris Johnson, chancellor Rishi Sunak, and health secretary Sajid Javid on 07/09/2021 revealed their plans to raise national insurance by 1.25 per cent.

Many conservative MPs are now concerned that putting up national insurance will put the burden of elderly care on the young and those of working age. When you hit the age for state pensions, you will no longer pay national insurance, even if you are still working.

Boris Johnson’s former chief of staff-turned-enemy Dominic Cummings said: “Why should young people on average and below-average incomes lose disposable income to pay for another subsidy for the older middle classes? This is bad policy and bad politics.”

However, MHA partner Patrick King has criticised the government’s proposal due to the lack of fairness. He says the suggested hike in NI to pay for social care represents the wealthy being subsidised by those who are less well-off is “a little unfair”, as the main beneficiaries of the scheme will be those on lower incomes.

Also, Labour MP Barbara Keely has pointed out that half of local authority social care budgets are spent on disabled people of working age.

Despite outrage from Conservative backbenchers, as the government has broken their election promise to not raise NI, Johnson is hoping for public support. Two-thirds of the public have said they support national insurance going up for the NHS and social care, a recent survey by YouGov has found.

The poll has shown that increasing national insurance would be more popular than putting up income tax.

In fact, only fifty-one per cent backed a 1p increase in income tax for increased health spending.

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