With less than four weeks to go before Labour National Insurance starts to bite, it’s clear which sectors will be harmed the most: Those that hard-working families rely on, says Mel Stride
The clock is ticking. We’re now less than four weeks away from the implementation of Labour’s disastrous jobs tax.
But let’s be clear about who is really paying the price for the Labour Chancellor’s latest tax grab: working families.
The Early Years Alliance (EYA) has warned the increase in employers’ National Insurance contributions could have catastrophic consequences for the early years sector, with providers struggling to absorb the rising costs.
The substantial hike in statutory employment costs is forcing nurseries to raise their fees by an average of 10 per cent, as one in seven nursery businesses face closure. The reality for many parents is that the cost of childcare will become completely unaffordable. Some may have no choice but to reduce their working hours because they simply can’t afford the rising fees, while others will be forced to cut back spending elsewhere. These are the ripple effects of Labour’s reckless anti-business policies.
The Chancellor may try to downplay the impact, but the reality is impossible to ignore. The planned 1.2 per cent rise in employers’ National Insurance Contributions may seem small on the surface, but as someone who’s built businesses from scratch, I can tell you the consequences are anything but small.
£900 per employee
From 6 April , businesses will face an additional £900 in National Insurance costs per employee. For many small businesses, this will mean job cuts, wage freezes, investment plans put on hold, and in some cases, businesses simply shutting down.
Retailers will be forced to raise prices, adding to household shopping bills. Restaurants and pubs will have no choice but to increase prices – meaning it’ll cost you more to buy a pint or a cup of coffee. All of this makes life harder for families already stretched to the limit.
As businesses scale back or freeze hiring, the economy suffers. We’ll see reduced economic activity, slower growth and rising unemployment. But with little business experience in the Labour frontbench, it’s no surprise they don’t understand the devastating impact of their policies.
But that’s not all. Labour’s policy also lowers the threshold at which employers begin paying the tax, from £9,100 to £5,000 per employee. This will hit part-time and low-wage workers the hardest – the backbone of industries such as retail, hospitality and leisure.
So much so, Hospitality UK estimates that up to three-quarters of a million hospitality jobs could be dragged into the tax net. The result? Job cuts, reduced hours and higher prices.
The British Retail Consortium has warned that 160,000 part-time retail jobs could be lost in the next two years as businesses struggle to cope with rising labour costs, while high street retailers like Currys and Marks & Spencer have also raised the alarm – saying they will have to increase prices, cut hiring, and rely more on automation as a result of the Chancellor’s ‘Jobs Tax.’
It’s a vicious cycle that hurts employers, workers and consumers.
Labour says their jobs tax will fund vital public services. But as this newspaper pointed out this week, the NICs increase won’t even raise the £25bn the Chancellor promised it would. And that’s before considering the impact of increased borrowing, which will likely swallow any remaining funds through higher debt interest instead of investing in public services. So, a lot of pain for zero gain!
If Rachel Reeves is serious about fostering a thriving economy and delivering the “growth, growth, growth,” she promised, she needs to urgently rethink this policy and provide real support to safeguard both businesses and essential services like childcare.
Rather than burdening businesses – who create jobs, wealth and growth – the money could be found elsewhere. If the government can get a handle on the welfare budget the Conservatives will support them. Having been Secretary of State in the department for work and pensions, I know there are at least £12bn a year of savings to be made.
Labour’s jobs tax is a ticking timebomb, and unless the government takes immediate action to protect the sectors that are vital to our economy, it’s working families who will take the hit.
Mel Stride is shadow Chancellor of the Exchequer