Wednesday, November 13, 2024

Budget fallout will hit UK plc’s squeezed middle hardest

Must read

Unlock the Editor’s Digest for free

Hate supermarket self-checkouts? Bad news: Increased automation is one obvious way in which consumer-facing businesses will try to lessen the impact of unpopular national insurance (NI) tax increases in the UK’s Budget. Such mitigations have limits, however.

Corporate complaints about UK chancellor Rachel Reeves’ October Budget keep coming. Over the weekend, more than 200 leaders from the hospitality industry signed a letter decrying the decision to lower the threshold at which employers start paying NI for each employee, from £9,100 to £5,000, from April 6.

The rate of employers’ national insurance contributions (NICs) will also rise by 1.2 percentage points to 15 per cent from the same date. Excluding temporary changes to NICs made under Boris Johnson’s Conservative government, the rate increase is the first since 2011, according to Stuart Adam of the Institute for Fiscal Studies.

Reeves has argued that businesses can “absorb” the additional costs by making efficiencies or accepting lower profits. She is partly correct. But those remedies risk unfortunate side-effects for employment — and the effects won’t be felt equally.

For a start — in a package designed to raise around £25bn a year — most of the revenue will come from the threshold change. That means the percentage increase in the cost of employing a lower paid worker will be higher than the percentage rise in costs of employing a higher earner.

In other words, employers of lots of lower paid workers — think hospitality — will probably be over-represented in the 940,000 employers that the Office for Budget Responsibility estimates will lose out from the changes in net terms.

Business bleating after a budget is a certainty. But there is a corporate “squeezed middle” that will find this change hardest. The smallest private sector employers will be protected by changes to the Employment Allowance, which offers companies with small overall NICs bills a discount or the ability to pay no NICs at all.

Meanwhile, big businesses with the ability to pass on cost increases to consumers will do so. Where this is not possible, Reeves is right: other efficiencies can be found at least to soften the impact.

Big retailers will probably introduce more automation such as self-scan checkouts. Some businesses might choose to take on more contractors instead of employing people directly.

It is certainly true that employers are likely to increase wages more slowly than they might have otherwise. Where this isn’t possible — for example, minimum wage workers — some jobs may no longer prove viable, or be replaced by technology. But it is the in the middle ranks of corporate Britain that the accusation of a “tax on jobs” will hit the hardest.

nathalie.thomas@ft.com

Latest article