Employer national insurance raid could lead to 130,000 jobs being slashed
The government’s hike to employers’ national insurance could cost as many as 130,000 jobs, according to new research.
Analysis from Bloomberg Economics suggests that up to 130,000 jobs could be lost if firms responded to the tax hike primarily by cutting employment.
This would amount to a 0.4 percentage point increase in unemployment, and would likely encourage the Bank of England to cut interest rates faster than markets anticipate.
The analysts did not think this was the most likely outcome, suggesting that the cost of higher taxes would likely be distributed more evenly across wages, margins and prices.
In their base case, unemployment would increase by 0.1 percentage points. Nevertheless, it does point to the potential damage to the UK’s labour market if firms were to pass on the national insurance hike through one particular channel.
The impact of the national insurance hike is a key issue for economic forecasters as they seek to gauge the future direction of inflation and growth.
Recent research from Deutsche Bank suggested that around 100,000 jobs could be lost due to the tax changes.
Bloomberg Economics noted that if firms were to deal with the costs by increasing prices, then inflation would be 0.9 percentage points higher than it otherwise would have been by April 2026.
Many businesses, particularly in the retail and hospitality sector, have warned that they will have to raise prices and cut jobs in response to the tax increase.
Speaking earlier this week at the Confederation for British Industry’s annual conference, Rain Newton Smith warned that the tax increase would “hit growth”.
“[Firms] are looking with heavy hearts to cut training and investment, delay decarbonisation projects, or pass on costs to customers,” she said.
But Chancellor Rachel Reeves insisted that her policies were the right measures to get the economy back on its feet.
“I have heard lots of responses to the government’s first budget but I have heard no alternatives,” she said at the CBI’s conference.
“We have asked businesses and the wealthiest to contribute more. I know those choices will have an impact. But I stand by those choices as the right choices for our country”.