More sectors have warned of the threat to business following the chancellor’s budget increase to employers’ costs.
Nurseries and hairdressers are among the companies facing possible closure because of the price hikes, which they say will undermine profitability and force them into the red.
In the budget, the employers’ national insurance rate was raised by 1.2%, from 13.8% to 15%, while the salary threshold at which they start to pay the tax was dropped from £9,100 to £5,000 per year.
Rachel Reeves also announced that the national living wage will rise by 6.7% from April 2025.
Employers’ rising costs
BT faces costs of £100m due to NI and minimum wage changes
A survey carried out by the British Hair Consortium found that 20% of hair salons were considering closure within 12 months, while most would think about switching to a self-employed model to deal with the cost increases.
Helen Dickinson, chief executive of the industry group, highlighted that the budget increases are on top of other upcoming regulatory costs, as well as an estimated £300 million to £800 million of extra costs from the implementation of the Employment Rights Bill.
She said: “Increases to national insurance contributions are yet another case of piling taxes on an already overburdened industry – a decision which will reduce investment in shops and jobs. As a low-margin industry and the UK’s largest private sector employer, the scale of increases will have an immediate and disproportionate effect on both retailers and their supply chains, who together are responsible for employing 5.7m people across the country.”
Meanwhile, nurseries have also warned they will have to significantly cut the number of government-funded free childcare places on offer since the scheme is now unprofitable.
Purnima Tanuku OBE, chief executive of the National Day Nurseries Association, said: “It’s disappointing that the chancellor who said she wanted every child to have the best start in life failed to announce any support for early education and care providers.
“As nurseries and other providers are gearing up to the final phase of the childcare expansion next year, they will have to pay much larger wage bills and higher national insurance contributions. We need these uplifts to be built into next year’s childcare funding rates. As the government will be paying for 80% of childcare hours in England, the amount it pays is fundamental to the sustainability of the sector.”
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