IoD: Raising employer national insurance costs would be a major setback for business

Following yesterday’s comments from the Prime Minister, which refused to rule out increases in employers’ national insurance, Anna Leach, Chief Economist at the Institute of Directors, said:

“Increasing employers’ national insurance would be a bad idea. A hike in NI represents a straightforward increase in business costs. It is essentially the equivalent of a poll tax on companies, and takes no account of whether a business is profitable or not. At a time when business confidence is low, hiring plans have already been hit, and vacancies are falling, this will hit employment prospects and earnings.”

In 2022, the Conservative government increased the main rate of employer national insurance contributions by 1.25% points. However, this increase was reversed the same year in the face of widespread concerns about its impact on a fragile economy. A petition launched in February 2022 by the IoD (#ScrapTheJobsTax) gathered nearly 200,000 signatures from businesses and members of the public.

At that time, a study from the independent National Institute of Economic and Social Research (NIESR) said: “The government-announced employment tax increase… adds needless complexity to the tax system, encourages self-employment rather than employment, and hits hardest the labour-intensive sectors that suffered most from Covid. It will encourage a shift away from labour-intensive sectors and reduce the UK’s international competitiveness.”

Until now, business has assumed that a similar measure would not be tried again, especially as rises in national insurance had been explicitly ruled out in the election manifestos of the main parties. However, a potential return to the idea in the Budget on 30 October would be a major setback for business.

Leach continued:

“The government is seeking to make a distinction between taxes on working people and taxes on business, with the former being exempt from tax increases following manifesto commitments. However, this is a false dichotomy. The effects of higher national insurance costs will be borne by workers. Coming alongside rumours of tax changes for investors, there is a growing incongruence between the government’s purported objective of making growth their number one priority and the trailed direction of policy.

“We strongly encourage the government to reconsider its tax plans, and rule out an increase in employers’ national insurance at the earliest opportunity.”

The 2021 policy paper from the National Institute of Economic and Social Research (NIESR), The New Employment Tax, can be found here.

The Institute of Directors’ Scrap The Jobs Tax petition is available here.