However, speaking at the International Investment Summit, Sir Nicholas Lyons, chairman of Britain’s biggest long-term savings firm Phoenix, warned of potential “collateral damage” from an increase in employer NI.
He said: “All of these things might look good on paper, but you have to really look through and see, what are the implications of this? What are the potential impacts?”
Pugh says: “Effectively, National Insurance is a tax on jobs. You can make a distinction between employee and employer’s [contributions] but in reality, it is all a tax on jobs.”
A rise in employer National Insurance will not bring pay cuts, Pugh said, but it would put the brakes on future pay rises.
“National Insurance is all part of the cost of employing someone, and that does tend to be related to take-home pay,” he adds.
“When you’re looking at the next round of pay reviews, companies will say our total compensation will go up by X and a portion of that is now taken up by our National Insurance contributions, which means the amount we can raise those salaries by is slightly lower.”
But tax rises are not the Government’s only policies poised to increase the cost of labour.
Employers are also grappling with Deputy Prime Minister Angela Rayner’s Employment Rights Bill, which includes new day-one rights for workers and extended statutory sick pay.
Alexandra Hall-Chen, the principal policy advisor for employment at the Institute of Directors, warns that these measures will increase costs for employers and thus water down the prospect of chunky pay rises.
She says: “Government should avoid measures in the forthcoming Budget which further increase the cost of employment.”