What are the pros and cons of the employers' national insurance hike?

Two weeks ago the chancellor in the UK announced in the budget that they will increase employers’ national insurance (NI) contributions from April.

Many people might not have even thought about it twice, if they are not an employer themselves. But this will in fact impact almost everyone.

First off, what’s changing?

The salary threshold at which employers start paying national insurance will go from £9,100 to £5,000. In addition, the rate of tax will increase from 13.8% to 15%.

The good thing is that this is expected to raise more than £20bn for the Treasury, without, the government argues, putting the pressure on “working people”.

That money will go to fund public services, like the NHS, which we all benefit from. Sounds great!

However, increasing employers’ NI contributions could negatively affect workers in the long run, as employers might end up passing on the cost - which they don’t have to - or because they may freeze pay or stop hiring. That’s one of the reasons we say it may impact everyone, not just employers.

Studies have found that although in the short term businesses might take on the additional cost, in the long term, it will impact decisions like hiring, wage increases and pricing of products or services.

Ander Iraizoz from the Oxford University Centre for Business Taxation has pointed out that it is irrelevant who has to pay NI, because most of the burden will be shifted onto employees through a drop in wages. The Office for Budget Responsibility has said that workers will bear around 60% of the increase initially, rising to 76% in the medium term.

There is another aspect of this, due to the types of businesses the national insurance hike will affect.

In a survey released this week, Pregnant Then Screwed found that a 10% rise in early years costs could result in parents stopping working to take care of their children. The group conducted the survey because they expect the increase in employer national insurance contributions and the rise in minimum wages to hit nurseries. They found that in response, 95% of early year providers are looking to increase their fees.

Many parents believe that these providers should be exempt from the national insurance increases, just like schools.

Joeli Brearley, founder of Pregnant Then Screwed, said: “Labour repeatedly promised to prioritise the early years. They paid lip services to the critical function it plays in supporting a robust economy and improving the outcomes for children.

“We are seeing no evidence whatsoever that childcare and early years education is being prioritised now that Labour is in government. Working parents of young children cannot sustain any more cost increases; if the government does not exempt providers from national insurance increases, the impact could be catastrophic.”

Action of the week: Do you think nurseries should be exempt from the increase in national insurance contributions?