The rise in employers’ national insurance contributions is expected to impact job creation and increase unemployment over the coming years.
- The government’s decision to raise employer National Insurance Contributions (NICs) is projected to curb job opportunities.
- Economists warn that the tax policy could yield far less revenue than anticipated due to its effects on wages and employment.
- Lower-income households may struggle more as economic pressures intensify.
- Inflation forecasts suggest limited economic growth in the near future.
The National Institute of Economic and Social Research (NIESR) has raised concerns about the recent increase in employer National Insurance Contributions (NICs). This policy, termed by the institute as a “tax on jobs,” is projected to hinder job creation and slow the growth of vacancies. The budget adjustments, which involve a 1.2 percentage point increase to 15% in employer NICs and a reduction of the liability threshold to £5,000, are initially expected to generate £26 billion for the government. However, experts indicate that sluggish wage growth and reduced job prospects might lower this anticipated yield to approximately £16 billion.
Stephen Millard, NIESR’s deputy director for macroeconomic modelling and forecasting, highlighted the challenges posed by the NICs increase. He stated that the policy changes are likely to “reduce job creation,” thereby contributing to a rising unemployment rate over the next few years. The most significant burden of this increase is predicted to fall on lower-income households, which are already grappling with high inflation and frozen tax thresholds, diminishing their disposable income further.
Adrian Pabst, a deputy director at NIESR focusing on public policy, suggested that instead of freezing personal tax thresholds, a more effective approach for supporting lower-income families would be to increase income tax for top earners. Meanwhile, other economic policies from the budget, particularly those increasing government borrowing by £28 billion annually, have introduced volatility in the UK bond market. The recent 10-year government bond auction saw subdued interest despite a higher yield of 4.475%, indicative of investor anxiety over escalating government debt levels.
Moreover, NIESR forecasts that inflation will exceed 3% by early next year, potentially influencing the Bank of England’s monetary policy. The bank is expected to proceed cautiously with interest rate cuts, with a predicted modest reduction of 0.25% at its upcoming meeting. Over the following years, a few quarter-point adjustments are anticipated, likely stabilising at about 3.25%.
Facing persistent inflation and economic uncertainties, the think tank predicts minimal economic growth, with GDP expected to expand by just 0.9% in 2024, increasing to 1.2% in 2025 and 1.4% in 2026. The current unemployment rate, averaging 4.2%, is anticipated to decrease slightly before climbing again in the coming years, reflecting the difficult economic environment.
The increased national insurance contributions pose a significant threat to employment rates and economic growth in the UK.
