A recent survey by the Chartered Institute of Personnel and Development (CIPD) reveals that businesses are increasingly considering layoffs and slowing recruitment due to a £25 billion tax increase on employment. According to the survey, one in four employers plans to reduce staff or halt hiring in response to the financial pressure from rising costs. The increase in national insurance contributions, set to rise from 13.8% to 15% in April, has prompted many businesses to rethink their workforce strategies, with employer confidence dipping as a result.
The planned national insurance hike, combined with a reduction in the earnings threshold for tax, is making it more expensive for businesses to hire and retain workers. As a result, businesses in sectors with large numbers of low-wage employees, such as hospitality and retail, are particularly vulnerable to the financial strain. The impact is most severe for companies operating on tight profit margins, where the rising tax burden may force them to scale back their workforce or freeze hiring altogether.
Along with slowing recruitment, more than a third of employers are considering raising prices to absorb the additional tax burden. This decision could exacerbate the already growing inflation concerns, placing further financial pressure on consumers. Employers, particularly those in retail and hospitality, are finding it increasingly difficult to manage costs and maintain profitability while dealing with the additional financial strain of the national insurance increase.
The tax rise is expected to create a ripple effect across the wider economy, particularly in sectors like retail, hospitality, and manufacturing, where businesses are highly reliant on low-wage workers. For these businesses, the higher cost of national insurance contributions, combined with the rising cost of raw materials and operational costs, is forcing them to make difficult decisions. In many cases, this means cutting jobs or freezing recruitment to protect their bottom lines.
The survey results also highlight concerns that the tax increases could hinder economic growth and delay recovery from the pandemic. As businesses face mounting costs, fewer companies may be able to expand, leading to fewer job opportunities for young workers and those seeking entry-level roles. For many, the tax rise is a barrier to creating new roles, further complicating efforts to reduce unemployment and bring the workforce back to pre-pandemic levels.
The government's decision to increase national insurance contributions has sparked debate among businesses, with many calling for a rethink or a slower implementation of the policy. Some employers argue that the tax increase is too steep, particularly when businesses are already grappling with high inflation, supply chain disruptions, and rising energy costs. Many are urging the government to provide more targeted support for sectors most affected by the new tax policies, especially those that rely heavily on low-wage workers.
Businesses in these sectors are particularly concerned that the tax increase will undermine their ability to stay competitive and create jobs. As costs rise, many are forced to pass those costs onto customers, leading to higher prices and lower demand. In the long term, businesses fear that this could lead to a cycle of slow hiring, job cuts, and reduced economic growth. For workers, particularly those in low-paid industries, the consequences are clear: fewer jobs, lower wages, and fewer opportunities for career advancement.
The CIPD’s survey also indicates that a significant portion of employers are uncertain about how they will manage their staffing levels in light of the increased tax burden. While some are optimistic about the possibility of absorbing the costs, many are still weighing the potential risks of job cuts and reduced hiring in the months ahead. These decisions, particularly in industries with large, diverse workforces, could have significant implications for the broader labour market.
Meg Gray