Unlock Editor’s Digest for free
FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
Hate supermarket self-checkouts? Bad news: Increasing automation is one of the obvious ways consumer-facing businesses are looking to reduce the impact of the unpopular National Insurance (NI) tax increase in the UK budget. However, there are limits to such mitigation.
Complaints from businesses about British Prime Minister Rachel Reeves’ October budget continue. Over the weekend, more than 200 hospitality industry leaders signed a letter condemning the decision to reduce the threshold for employers to start paying NI per employee from £9,100 to £5,000 from 6 April.
Employer National Insurance Contribution (NIC) tax rates will also rise by 1.2 percentage points to 15% from the same day. This is the first rate hike since 2011, apart from temporary changes to the NIC under Boris Johnson’s Conservative government, said Stuart Adam of the Institute for Fiscal Studies.
Reeves argued that companies can “absorb” additional costs by becoming more efficient or accepting lower profits. She’s partially right. However, these remedies risk having unfortunate side effects on employment, and their effects will not be felt equally.
First, in a package designed to raise around £25bn a year, most of the revenue will come from changes to the threshold. This means that the cost of hiring low-wage workers increases more than the cost of hiring high-wage workers.
Some content could not be loaded. Please check your internet connection or browser settings.
In other words, of the 940,000 employers that the Office for Budget Responsibility estimates will lose out on the net change, employers with large numbers of low-wage workers (such as those in the hospitality industry) will probably make up the majority. It will be.
It is certain that your business will fail after reaching your budget. However, there is a “squeezed middle class” of companies that will find this change the most difficult. The smallest private sector employers will be protected by changes to employment benefits, meaning businesses that charge less NICs overall will receive a discount or not have to pay NICs at all.
On the other hand, large companies with the ability to pass on cost increases to consumers will do so. If this is not possible, Reeves is correct. Other efficiencies can be found to at least soften the impact.
Large retailers will likely introduce more automation, such as self-scanning checkouts. Instead of hiring people directly, some companies may choose to hire more contractors.
To be sure, employers are likely to see wage increases slower than they would otherwise be. If this is not possible, some jobs may not survive or be replaced by technology, for example for minimum wage workers. However, it is mid-level British companies that will be hit hardest by the accusations of “employment tax”.
nathalie.thomas@ft.com
