Fears have been raised that the government’s plan to raise National Insurance contributions and tax dividend payments at a higher rate could lead to lower headcount at firms.
Three in 10 firms have told the Institute of Directors that they will employ fewer people as a result of NI increases because of the growing cost of employing workers.
The planned changes in tax will fund the health and social care levy announced in September.
In the IoD survey of over 600 directors, the overwhelming majority (83%) of business leaders supported the need to raise taxes to invest in health and social care. Nevertheless, more than two-thirds (68%) oppose the higher rates of tax levied on National Insurance contributions and dividend payouts to pay for it.
Commenting on the findings, IoD chief economist Kitty Ussher, said: “This research is a stark warning to government of the impact that the national insurance rate rise is likely to have on jobs. If, as they intend, three in 10 businesses decide to employ fewer people as a result of this tax change, the effect will be felt across the economy just at the time that the furlough scheme is ending.
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She said chancellor Rishi Sunak could do more to help businesses by focusing on skills shortages: “Since the March Budget, when the chancellor announced a future rise in corporation tax, the economic bounce-back has brought in more tax than expected. Rather than raising the cost of taking on staff through higher employers’ national insurance contributions, he should be looking to support the companies currently suffering from skills shortages.”
Ussher added: “The national insurance rise is also undoubtedly a significant contributory factor in the sharp decline in economic confidence that we measured in our September Directors’ Economic Confidence Index.”
The IoD’s Directors’ Economic Confidence Index, which measures the net positive level of optimism in the UK economy among directors, recorded a value of just under zero (-1%) in September 2021, down from +22% in July 2021.
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The 1.25% health and social care levy will come into effect from April 2022 alongside a 1.25 percentage point increase on the dividend tax rate. The levy is aimed at raising £12bn per annum and, according to the government, will be ring-fenced for health and social care costs. Initially it will be added to National Insurance but from April 2023, it will become its own tax with a separate line on employees’ payslips.
