The government’s national insurance hike of 1.25% percentage points, announced yesterday, has continued to provoke negative reactions from business groups and employers.
Announcing the rise yesterday (7 September), prime minister Boris Johnson said it would raise £36 billion over the next three years for the health and social care budget.
Employers will pay 15.05% in national insurance contributions on employees’ earnings over £170 per week from April 2022, compared to 13.8% employer NICs currently. Employee NICs will increase from 12% between £180 and £967 per week and 2% thereafter, to 13.25% and 3.25% respectively.
MPs will hold a vote in the Commons later on whether to push ahead with the health and social care levy, as it has been branded.
The announcement was met with anger from many employers and lobby groups, with the Recruitment and Employment Confederation calling it a “tax on jobs”.
Suren Thiru, head of economics at the British Chambers of Commerce, referred to the fact that organisations will be making difficult decisions around redundancy as the Coronavirus Job Retention Scheme comes to a close at the end of this month.
An anti-jobs, anti-small business, anti-start-up manifesto breach” – Mike Cherry, FSB
Charles Cotton, senior reward and performance adviser at the CIPD, said: “Like pension auto-enrolment and the introduction of the national living wage, most organisations will probably accept higher costs in the short term. However, for this position to be sustainable in the medium to longer term, employers need to reduce their costs by improving employee productivity, so now is as good as anytime to explore how the various ways they can boost staff performance.
“We don’t predict that employers will have to increase salaries for all workers in response to a cut in their take home pay. Nor do we forecast that benefits will be cut in the coming months. However, some low-waged workers may feel the cut more acutely, especially those already suffering from financial distress, so that is why it’s important that HR has helped their employers create a financial wellbeing policy to manage and mitigate this risk.”
Groups supporting small and micro-businesses warned that the gap between employed and self-employed workers would grow. Self-employed workers’ NICs rate will increase from 9% to 10.25%, with those operating through limited companies hit by an additional 1.25% tax on dividends.
Kitty Ussher, chief economist at the Institute of Directors, said this was “an extraordinary time to be considering adding to the cost of employing people”, citing the IoD’s own research showing 73% of businesses are already concerned about salary-related business costs.
She said: “Businesses do not understand why government would want to add to the cost of taking on a new employee through an increase in employer national insurance at this of all times.
“National insurance should not be used in place of general taxation. It was established to protect people financially from the risks of being unable to work, based on a contributory system, and it is on that basis that employers also make contributions. There is no logic to employer national insurance contributions being used to fund anything else.”
Mike Cherry, chair of the Federation of Small Businesses, echoed her concerns. “This move on NI marks an anti-jobs, anti-small business, anti-start-up manifesto breach,” he said.
Cherry called for the government to increase the Employment Allowance, which enables some employers to reduce their national insurance liability by up to £4,000, to “mitigate the damaging impacts of these hikes on the small firms that make up 99% of our business community”.
The Institute of Fiscal Studies called the increase a “budget in all but name”. Director Paul Johnson said: “£14 billion of tax raised through a supposedly new tax, equivalent increases in spending on health and social care, and an announcement of spending totals for the next three years certainly constitute a major fiscal event.
But he conceded that “after a quarter century of dithering we may finally have settled on a solution for improving the structure of social care funding, as well as an increase in the amount spent publicly on it”.
He added: “We have a funding package for the NHS which should be enough to prevent post pandemic waiting lists from spiralling. For ‘unprotected’ departments, the announced spending totals might be enough to avoid cuts, though this is far from certain and depends on the extent of future virus-related spending.”
Ben Harrison, director of the Work Foundation think tank, said he hoped this would be a first step in driving meaningful social care reform.
The sector continues to experience acute staff shortages, with a recent Totaljobs survey revealing that the most common motivator for care staff looking for alternative employment is higher pay (52%), closely followed by not feeling valued enough (45%) and a lack of opportunities for progression (31%).
Harrison said: “Alongside a sustainable funding programme, we need to see a comprehensive workforce strategy that engages directly with service users, providers and workers alike, and puts issues like pay, progression and workforce wellbeing at its heart.
“Care workers play an increasingly vital role within our economy and society. We need to seize this opportunity to develop a sustainable strategy to support a thriving care workforce in the future.”
Asked about social care staff shortages on BBC Breakfast, health secretary Sajid Javid said the money would mean local authorities could raise wages and fund more staff training and development.
The timing of the announcement was a focus of concern for many employers, however.
While the worst of the pandemic may appear to be over, many organisations are still trying to find their way out of a deep financial hole that they’ve been stuck in for the last 18 months.” – Tania Bowers, APSCo
Joanne Frew, head of employment at law firm DWF, said the combination of a challenging labour market, overcoming the difficulties of the pandemic and questions over future workforce numbers meant the announcement was met with discord.
She said: “With the Coronavirus Job Retention Scheme drawing to a close and labour supply presenting ongoing difficulties, many employers are struggling. Business continuity has to be a priority, with the aim of keeping people in employment.
“National Insurance represents a flat cost across the business, regardless of profitability and with this increase, many employers will think twice before taking on extra staff. Whilst it was always predictable that the cost of the pandemic would need to be paid for, employers certainly need a longer period of grace in order to recover from the impact of the past 18 months.”
Tania Bowers, head of public policy at the Association of Professional Staffing Companies (APSCo) said: “The increase in dividend tax will only add more pressure to already stretched businesses.
“While the worst of the pandemic may appear to be over, many organisations are still trying to find their way out of a deep financial hole that they’ve been stuck in for the last 18 months.
“And with skills shortages impacting the bounce back for firms, adding an extra financial burden too soon could have a detrimental impact on the recovery of a significant proportion of UK businesses.
“While we do accept that the financial aid supplied during the pandemic will need to be recovered at some point, the timing of this is arguably too soon and we question the permanent introduction of a new tax.”