​National Insurance Hikes: The Cost to Jobs and Businesses

The UK’s recent Autumn Budget has sparked concern across various sectors, with the announcement of increased employer National Insurance Contributions (NICs) set to come into effect from April 2025. While the changes aim to generate significant revenue for public services, critics argue the measures will disproportionately affect businesses, particularly those reliant on part-time or lower-income workers, such as the hospitality industry.

Under the new policy, the rate of employer NICs will rise from 13.8% to 15%, and the threshold for liability will drop from £9,100 to £5,000 per year. According to the British Beer and Pub Association (BBPA), these adjustments will increase the financial strain on businesses and could hinder job creation, particularly for younger workers who often rely on entry-level positions in hospitality as their first step into employment.

Impact on Employment and Young Workers

The BBPA estimates that the NICs changes could cost employers an additional £153 million annually to retain the current workforce of 350,000 under-25s. This additional burden may lead to reduced hiring and even layoffs for a sector already under pressure from rising costs. Hospitality leaders warn that the increased costs could disproportionately affect those working shorter or flexible shifts, such as students or single parents, making it harder to maintain the industry’s hallmark flexibility.

Emma McClarkin, Chief Executive of the BBPA, emphasised the potential consequences for young workers:

“Our industry provides rewarding careers, helps younger people build skills, grow in confidence, and fund university education or driving lessons. Without this vital work, many would struggle with rents, bills, and basic living costs.”

She added that the changes might force businesses to halt recruitment, increase prices, or reduce operating hours, all of which would have a ripple effect on communities and local economies.

Broader Implications for Businesses

Small and medium-sized enterprises (SMEs) are likely to feel the brunt of these changes. Unlike larger corporations with diversified resources, SMEs often operate with tight margins, leaving little room to absorb additional costs. A survey of SMEs conducted shortly after the Budget revealed that many employers are already reconsidering planned salary increases and expansion projects.

Kate Nicholls, CEO of UKHospitality, highlighted the disproportionate impact on hospitality businesses, where part-time work is common:

“Employing a single parent working a standard school-day shift will cost employers £2,100 more annually. These additional costs will act as a brake on growth, forcing many businesses to cut back on staff or reduce operating hours.”

Other Budget measures exacerbate the situation, including increased business rates and higher minimum wages. While some relief was offered in the form of an expanded Employment Allowance, which rises from £5,000 to £10,500, it is unlikely to offset the significant financial strain many small businesses face.

Economic Ripple Effects

The wider economic implications of the NICs changes are also concerning. Analysts warn businesses may pass the additional costs onto consumers, driving up prices and contributing to inflationary pressures. Reduced hiring and stagnant wage growth could further erode consumer confidence, leading to lower spending in key sectors such as retail and leisure.

The Office for Budget Responsibility (OBR) predicts that the increased NICs burden will likely result in lower wages and higher prices, creating challenges for both workers and consumers. Meanwhile, industry leaders are calling on the government to reconsider the timing and scope of these changes to mitigate their impact on the economy.

Calls for Reform

Business leaders have urged the government to explore alternative measures to ease the burden on employers. Proposals include creating a separate NICs band for lower earners or exempting part-time workers from the new rates.

“We need meaningful reforms, not just more costs,” said McClarkin. “If the government wants to support jobs and economic growth, it must act swiftly to address the challenges posed by these changes.”

While the Chancellor defended the decision as necessary for funding public services, critics argue that the policy could undermine long-term economic growth by stifling businesses’ ability to invest and expand.

As businesses brace for the financial impact of the NICs hike, the debate highlights a difficult balancing act for policymakers: generating revenue to support public services while fostering an environment conducive to job creation and economic growth. Whether these measures will achieve their intended goals or exacerbate existing challenges remains to be seen.