A Federation of Small Businesses (FSB) assessment of the potential impacts of a 1.25% increase in national insurance contributions (NICs) for employers, sole traders and employees indicates that the move could cause 50,000 more people to be left out of work across the UK.
The estimate is based on bringing together the Institute for Fiscal Studies (IFS)’s estimates of NICs rates, an international assessment of comparable employment cost increases and the Office for National Statistics (ONS)’s latest labour market study.
The UK’s largest business group warns that the impact on the UK jobs market could be even greater with the end of the job retention scheme approaching, a moment that has no precedent in labour market history.
As a result of the increase, annual Employer NICs for a small business with five employees on salaries of £31,000 will rise to £16,500. The total annual cost of the hike to the small business community is set to be £5.7bn.
The development comes as the Government’s own figures show that just 640,000 small businesses will receive full protection from its planned Employer NICs hike thanks to the Employment Allowance.
The figure represents 10.5% of the small business community, according to latest Government stats, not 40% as was stated at yesterday’s Government press briefing.
Outside of the NICs increase, directors belonging to those 640,000 businesses will be impacted by a planned 1.25% increase in dividend taxation, also announced yesterday.
Commenting on the findings, FSB National Chair Mike Cherry said: “The UK Government’s regressive jobs tax hike will put jobs at risk, stifle start-ups and prevent new jobs from being created.
“It could mean 50,000 more people out of work after it takes effect in April. That means 50,000 livelihoods harmed – 50,000 people who would otherwise be at work in our economy.
“Combined with other rising employment costs – and firms having to make tough decisions about the futures of those who have been supported by the job retention scheme – that 50,000 figure could easily end up being a good deal greater.
“At the same time, the combination of NICs and dividend taxation hikes will deter those thinking about launching their own enterprise from taking the plunge and spurring our economic recovery.
“UK Government often celebrates the existence of six million small businesses in the UK – the majority of which are sole traders, a group which will be hit especially hard by the NICs rise.
“At the same time, the extra tax on company directors adds insult to injury after a gruelling 18 months during which they received no income support from UK Government whatsoever. We put detailed proposals to UK Government to address this oversight but they were not taken forward. Recent decisions around IR35 legislation will see many more people impacted by the tax increases announced yesterday.
“Longer-term impacts on growth and productivity are harder to calculate – but will be enormous. Given the NICs hike is being debated and voted on in Parliament, the absence of a UK Government estimate of the jobs impact marks a glaring omission.
“The rise acts as a brake on employment, another reason in the ‘no’ column for employers considering expansion, and another reason in the ‘yes’ column if they’re thinking about cutting staff numbers. The real-world impact will be huge.
“UK Government should now move to protect more small business owners, directors and sole traders from these hikes – as things stand the overwhelming majority will be hit – starting with an increase in the Employment Allowance.
“Taxing the small business owners and freelancers who serve our local economies, and who have endured a terrible 18 months, just at the moment when they’re trying to get back on their feet will undoubtedly stifle efforts to recruit, retain and reskill over the critical years ahead, hampering our economic recovery in the round.”