The government is facing renewed pressure to delay the planned national insurance increase, with a trade body warning that firms will have to rethink their hiring plans which may jeopardise the UK’s economic recovery.
Stephen Phipson, chief executive of manufacturers’ organisation Make UK, said the government should avoid “shooting business in the foot” as businesses face escalating costs during a key period for the UK’s post-pandemic recovery.
The 1.25% health and social care levy will come into effect in April 2022, which aims to raise “£12bn per annum to help pay for health and social care. It will initially be added to national insurance, but from April 2023 it will become its own tax with a separate line on employees’ payslips.
A survey of almost 300 manufacturing firms by Make UK found that three in five believe the levy will have a moderate (33%) or significant (27%) impact on their hiring intentions.
Nearly three-quarters said they would, or would be likely to, pass on the tax rise to customers in the form of price increases.
Phipson said: “The proposed increase remains illogical and will be even more ill-timed given how circumstances have rapidly changed since it was announced.
National insurance hike
“The cost burden on business is continuing to escalate and, while some of these increases are due to global events, government must avoid adding shooting business in the foot by an entirely self-imposed decision.”
The government has come under increasing pressure to cancel the planned NI rise, but Boris Johnson and chancellor Rishi Sunak said in January that it “must go ahead”, stating that “there is no magic money tree”.
Manufacturers are facing a multitude of challenges in accessing labour, the Make UK survey revealed, including increased difficulty in sourcing workers from the EU; an expensive labour market; changing attitudes towards flexibility; and reduced hours and early retirement.
Fifty-seven per cent of manufacturers have seen an increase in retirement or reduced hours in the wake of the pandemic.
“Vacancies within the industry are at a time-series high, with the highest manufacturing vacancies per 100 employed for 20 years reported by the ONS’s latest employment figures,” its latest Manufacturing monitor report says.
“The current rate of vacancies in the industry stands at 4.0 roles per 100 employed. By way of comparison, the average figure across that same 20-year time period is only 1.9, demonstrating just how short for labour the manufacturing sector is at the moment.”
Forty per cent said the costs associated with wages and employment had been a “major increase” for their business, while 47% said they had seen a “manageable increase” in these costs.