Rise in National Insurance and Minimum Wage delivers ‘ big blow’ to struggling firms

Rachel Reeves’ increase to employers’ National Insurance Contributions (NIC) will be a “big blow” to sectors already suffering from higher costs, a number of businesses have warned.

While delivering the Autumn Budget this afternoon, the Chancellor announced a number of “very difficult decisions” in order to fill the £22bn “black hole” inherited by the Conservatives.

Keeping her promise to avoid taxing “working people,” Reeves announced a 1.2 per cent increase to employers’ NICs, now up to a total of 15 per cent.

The announcement comes following weeks of warning signs that an increase to employers’ NICs could result in reduced hiring activity, especially among small and medium-sized enterprises (SMEs).

“The Chancellor’s announcement of an increase to employers’ National Insurance contributions is a big blow to UK businesses of all sizes who are already grappling with a range of escalating costs,” Vipul Sheth, MD of accountancy specialist Advancetrack, said.

Sheth added: “At a time when companies are still recovering from recent hikes in corporation tax, this additional NI burden risks undermining growth, job creation, and stability in an already fragile economy.

“By placing the burden squarely on employers, the Government is overlooking the real-world impact on both businesses and employees.”

“Rising employment costs inevitably lead to difficult decisions, meaning businesses may reduce hiring, freeze salaries, or cut back on employee benefits to offset this new financial pressure,” Sheth added.

A ‘double whammy’ blow to UK businesses

On the back of a rise in employers’ NICs, Reeves announced an increase in National Minimum Wage of 6.7 per cent.

Anthony Davies, partner and head of tax at accountancy firm UHY Hacker Young, said this has delivered a “double whammy” for the hospitality and retail sectors.

Davies added: “A lot of low-margin sectors like hospitality and retail are going to struggle to cover those new costs.

“We expect to see those sectors step up their transition away from workers and towards technology – for example the use of self-ordering kiosks in restaurants.

“If the cost of keeping workers in jobs continues to rise, making the decision to reduce staffing will get easier.”