The hike to employers’ national insurance in last month’s Budget could end up costing the economy over 100,000 jobs, according to research from Deutsche Bank.
In last month’s Budget, Chancellor Rachel Reeves increased the amount employers have to pay in NICs by 1.2 per cent, and lowered the wage threshold at which employers must start paying the tax from £9,100 to £5,000.
The government has claimed that it is not raising taxes on working people, but businesses have warned the costs will ultimately have to be shouldered by workers or consumers.
“Higher employer NICs could further strain the labour market by around the turn of the year,” Sanjay Raja, the bank’s chief UK economist said.
“Ultimately, whether its through cutting existing payrolls or trimming hiring plans, the increase to NICs will hit employment/employment growth.”
“How many jobs, including future jobs, would be lost based on the above? Just a little over 100,000 jobs,” Raja said. “This won’t happen all at once. More likely, we will see declines in hiring and employment growth, with some firms adjusting more immediately to the increase in tax.”
Alongside job losses, Raja’s research suggests that wage growth will be lower while prices will be slightly higher too. Businesses will also hold back from investment decisions.
The research echoes a string of warnings from firms in the retail and hospitality sector that they will either have to cut roles or hike prices in response to the Budget tax hike.
Earlier this week, Andrew Higginson, chair of the British Retail Consortium, warned that a jump in costs would be “too much for [the retail] industry to bear”.
Peel Hunt estimates that retail firms will see pretax profit fall by an average of 7.5 per cent as a result of the tax increase, although some will be hit much worse than others.