National Insurance hike sparks business backlash

The UK business community is facing an escalating crisis as the imminent rise in National Insurance (NI) contributions places immense financial strain on firms across the country.

A recent study by the British Chambers of Commerce (BCC) Insight’s Unit, in partnership with professional services firm AAB, has laid bare the concerns of business owners who fear that the Government’s policy changes will impact investment, recruitment and prices.

With just weeks before the NI hike takes effect, 82 per cent of businesses say they will need to rethink their strategies to cope with the increased costs.

The study, which surveyed over 1,200 businesses – 91 per cent of which were small and medium-sized enterprises (SMEs) – paints a bleak picture of the challenges ahead. More than half (58 per cent) of firms say the NI rise will directly affect recruitment plans, while 54 per cent expect to increase prices to offset costs. The impact extends beyond hiring and pricing, with 36 per cent of businesses predicting reduced investment and 30 per cent foreseeing changes to day-to-day operations. Only a mere 18 per cent of businesses feel the rise will not necessitate any changes.

The Government’s policy-making process has also come under scrutiny. A striking 79 per cent of businesses do not believe policymakers have properly assessed the economic impact of these changes. Additionally, 77 per cent of businesses feel the pace of policy changes is too fast, making it difficult for firms to adapt. While 42 per cent of respondents say they understand the rationale behind the Government’s decisions, a larger proportion – 52 per cent – disagrees, reflecting widespread confusion and frustration within the business community.

The survey findings underscore deep-rooted concerns among business owners, with many fearing the changes will stifle growth and profitability.

Adding to the anxiety is the Government’s proposed Employment Rights legislation. The survey found that 55 per cent of businesses anticipate changes to statutory sick pay will force them to alter their plans, with one-third (33 per cent) expecting a direct impact on recruitment. Meanwhile, 45 per cent of businesses believe that new ‘right to switch off’ proposals will affect their operations, though 55 per cent say they do not foresee major changes due to this policy.

Alex Veitch, Director of Policy at the BCC, warns that businesses are sitting on a “powder keg of costs” that could disrupt the economy and hinder growth.

“The clock is ticking down to the National Insurance rise, and firms are already telling us they are sitting on a powder keg of costs. Most are saying they will have to raise prices and reconsider recruitment plans. That’s unlikely to create an environment that fosters growth, the key priority for government. Ministers need to read the room and recognise the impact this tax hike will have,” Veitch said.

The BCC is urging the Government to reconsider its stance and provide a clear tax roadmap to help businesses plan for the future. “The Government has pledged to retain the National Insurance tax position through the life of this Parliament, but our new evidence should give pause for thought,” Veitch added. “We need the Government to publish a wider tax roadmap for business, setting out the direction of travel for costs like National Insurance and business rates.”

The business community is calling for urgent reforms to alleviate the financial burden. Business rate reform has been cited as a key priority, with firms urging the Government to create a system that incentivises investment. Moreover, planning and skills reforms are essential to removing barriers to growth and ensuring a stable economic environment for businesses to thrive.

While recent government announcements on infrastructure projects have been welcomed, they offer little consolation to firms grappling with rising operational costs. “That’s small comfort for businesses feeling the cost pressure of National Insurance right now. With prices likely to rise and recruitment challenges ahead, the outlook remains deeply concerning,” Veitch remarked.

Emma Lancaster, Chief Executive at AAB, echoed these concerns, emphasising the need for businesses to prepare for the financial strain ahead.

“Bearing the burden of increased costs while maintaining profitability will be a challenge for all businesses across the UK. Our team at AAB is providing critical support for our clients, enabling them to navigate the cost challenges while also achieving their strategic goals,” Lancaster stated.

She highlighted the importance of financial planning in mitigating the impact of the NI increase. “We understand the concern businesses have in relation to the looming increase of employer National Insurance contributions, an additional challenge in an already complex trading environment. Each business will feel the impact, and knowing this, it has never been more important for all businesses to invest in planning for what’s coming, with sound financial data being crucial in making the best decisions.”

With employment rights changes also on the horizon, businesses must stay informed and proactive. “Our clients are closely monitoring the implications of upcoming changes to UK employment rights, with the support of AAB’s HR advisory team. Staying informed and prepared for these developments should be another key focus for business owners,” Lancaster advised.