One-third of business owners are planning to reduce headcount in response to April’s increase in employers’ national insurance contributions (NICs), with one in five having already cut jobs.
The research, which polled 500 UK business owners with turnovers of £5 million or more, has been published as part of a Business Owners Sentiment Survey (BOSS) by professional services group S&W.
It found that 20% had already reduced their staff headcount as a direct result of NIC changes announced in the October 2024 Budget – and that an additional 33% are planning to make further job cuts.
From April 2025, employers faced the rise in employers’ NICs from 13.8% to 15%, and a significant decrease in the threshold at which the tax starts to be paid.
One-quarter (24%) of those surveyed have reduced workers’ hours, and a further 35% plan to, and 22% have frozen pay, with another 29% planning to. Recruitment freezes have taken place for 21% of those surveyed, while a further 35% plan to pause hiring.
Rising costs were among the most likely to have hit businesses, whether increased energy and fuel prices (33%) or increases in raw materials and goods prices (31% for both). Among owners with more than 500 employees, 41% said rising staff costs had impacted them.
One in three (31%) said they had been impacted by global political uncertainty, while one in five said their business had been affected by either reduced customer demand (22%), labour shortages (21%), and cyber attacks or data breaches (21%).
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Claire Burden, partner in the consulting team at S&W, commented: “Businesses face considerable challenges in the current economic climate, and many owners are having to make difficult decisions to stay afloat.
“Given that salaries represent a considerable proportion of the overall cost base for most businesses, it is to be expected that many are looking closely at headcounts in response to the increased national insurance costs.”
When asked what three factors had the potential to most negatively impact their business, the most common responses were increased cost of raw materials and goods (24%), labour shortages or skills gaps (24%), increased labour costs (23%) and reduced customer demand (22%).
However, increased taxation was most likely to worry business owners, with a quarter (25%) saying this had the potential to impact their business most negatively.
Alex Simpson, partner in the employer solutions team, added: “For most businesses, the extent of the employers’ NIC change was a surprise. We anticipated an increase in the employers’ rate, but the additional reduction to the earnings threshold was not expected and is expected to have a dramatic impact over time.
“This should come as no surprise given previous NIC increases prompted warnings from the Office of Budget Responsibility that ‘the economic incidence of the tax is passed through entirely to lower real wages in the medium term.’”.
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