The Fallout From Labour's National Insurance Changes
Nobody is happy, except maybe the Chancellor ...
Posted by Roger Eddowes on 25/11/2024 @ 8:00AM
In a move that has reverberated throughout the British economy, the Labour government's recent hike in National Insurance contributions has sparked substantial discontent among businesses and workers alike ...
As the fallout around Labour's National Insurance changes builds, how long before we get a U-turn?
The increase, from 13.8% to 15%, accompanied by a reduction in the employment threshold from £9,100 to £5,000, presents a complex array of challenges that could have far-reaching implications for various sectors, especially for part-time workers and those employed in hospitality and charity sectors.
"The effects of this tax overhaul are being felt particularly hard by part-time workers!"
Even for myself, employment costs have increased by a fair percentage. And such substantial hikes in National Insurance contributions create a ripple effect, scraping margins thin, potentially raising prices, and potentially leading employers to reconsider their workforce structures. I am pleased to say I'm not at that point, but I do know other business owners who are.
I feel that lowering the threshold for National Insurance contributions will complicate efforts to address the country's worklessness crisis. This change disproportionately affects lower-paid and part-time workers, making them much more expensive to employ. Consequently, this could dissuade many businesses from hiring or retaining part-time staff, further jeopardising job security for an already vulnerable workforce segment.
The hospitality sector is especially vocal in its opposition, with over 200 leaders co-signing a letter to the Chancellor outlining dire predictions of job cuts and closures. This communique ... organised by the trade body UKHospitality ... spoke about how the hike in National Insurance contributions could impose an estimated annual burden of £3.4 billion on the sector.
Major players, including JD Wetherspoon and Whitbread, voiced their fears that the financial strain would disproportionately affect lower earners and deter flexible working practices which are essential in the hospitality arena.
Of course, the Labour government is behind the Chancellor. The Chief Secretary to the Treasury, Darren Jones, said that larger businesses should "suck it up" for the good of the NHS, hinting at an expectation that more robust companies should absorb the additional tax burden.
This perspective is completely wrong, in that it fails to consider the potential for a negative cascading effect on smaller businesses and, ultimately, on the economy at large!
I predict that increased costs stemming from the National Insurance hikes will erode living standards for many workers. The combined impact of higher inflation and reduced wages will ultimately lower real incomes.
As businesses reassess their investment and recruitment strategies in light of the tax changes, the net effect on employment, economic growth, and job security becomes increasingly worrisome.
Grocery giants like Tesco are also bracing for the forthcoming National Insurance bill, which is estimated to rise by £250 million a year. In total, Tesco could face a staggering £1 billion in contributions across the current parliamentary period. Peers from major supermarkets, including Sainsbury's, Asda, and Morrisons, fear that their cumulative liability may reach £1.3 billion, a burden likely to translate into elevated food prices for consumers.
And the charity sector isn't escaping unscathed either; numerous organisations have raised alarms regarding how National Insurance hikes could diminish their ability to provide vital services. The Voluntary Organisations Disability Group (VODG), which represents 100 charities, foresees potentially devastating consequences for about a million vulnerable individuals reliant on state-funded disability services. The additional burden ... forecasted at £1.4 billion ... poses a significant threat to frontline services, including hospice care, whose operating costs could balloon by £30 million annually.
The government needs to take heed of these concerns and either rethink the structure of this tax or implement comprehensive support systems that could help alleviate its burdensome consequences!
Unfortunately, I don't hold out any hope as the Chancellor seems quite happy with her decision and the Prime Minister and the Cabinet are (so far) standing firm.
As the fallout builds, I wonder how long it will be before we get a U-turn.
Until next time ...
ROGER EDDOWES Business Godparent
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Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.
Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.
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