National insurance contribution rise plans labelled ‘madness’

Plans to raise national insurance contributions (NIC) by a total of 1% in October 2011 are “madness” and amount to a “tax on jobs” that will hamper attempts to increase employment, employer groups have warned.

In the Pre-Budget Report (PBR) yesterday, chancellor Alistair Darling announced that NIC for both employers and staff would increase by 0.5% in October 2011 – this comes on top of a previous 0.5% increase for October 2011, first revealed in the PBR 2008.

Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development, said: “This tax on jobs will hit at a time when we are still likely to be in the early stages of a ‘jobs light’ economic recovery – this is not the tonic a sickly labour market needs.”

The CBI’s director-general, Richard Lambert, added: “The chancellor has made a serious mistake imposing an extra jobs tax at a time when the economic recovery will still be fragile.

“Increasing national insurance contributions will hold back job creation and growth.”

Stephen Robertson, director-general of the British Retail Consortium, described the chancellor’s announcement as “madness”, saying the government should be scrapping the already announced NIC hike rather than raising it further.

He said: “This is madness. The new threshold will help some, but the chancellor should have said he’s scrapping the increase already announced, not adding to it. This makes it more expensive for all businesses to maintain and create jobs, but is particularly bad for retail because it is such a big employer.”

The rate of employers NIC was set to increase from 12.8% to 13.3% in 2011, but yesterday’s announcement will now see this rise further to 13.8%.

Ellie Gamble, senior tax manager at accountancy firm Grant Thornton, said: “It is disappointing that the government did not take this opportunity to think more creatively about the options available, which could have included a rebate or holiday for NICs when a job was offered to bring someone back into the workforce.”

For an employee earning £50,000 a year, the latest proposal would mean an increase in national insurance of £5.46 per week or £283.80 per annum. For their employer, it would mean an increase of £8.26 per week or £429.55 per annum, according to Matt Ellis, an employment tax partner at business consultancy firm Deloitte.

He added: “Undoubtedly, many employers will try to mitigate the impact of this rate increase by using salary sacrifice arrangements, to ensure that the overall pay and benefits package is more tax efficient.”

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