Unlock Editor’s Digest for free
FT editor Roula Khalaf selects her favorite stories in this weekly newsletter.
Do you hate supermarket self-checkouts? Bad news: Greater automation is an obvious way in which consumer-facing businesses will try to reduce the impact of unpopular National Insurance (NI) tax rises on the UK budget. However, these mitigations have limits.
Corporate complaints continue to come in about British Chancellor Rachel Reeves’ October budget. Over the weekend, more than 200 hospitality industry leaders signed a letter denouncing the decision reduce the threshold at which employers start paying NI for each employee, from £9,100 to £5,000, from 6 April.
The rate of employers’ national insurance contributions (NICs) will also increase by 1.2 percentage points to 15 per cent from the same date. Excluding temporary changes to NICs made under Boris Johnson’s Conservative government, the fee increase is the first since 2011, according to Stuart Adam from the Institute of Fiscal Studies.
Reeves has argued that companies can “absorb” additional costs by making efficiencies or accepting lower profits. He is partly right. But those remedies run the risk of having unfortunate side effects for employment, and the effects will not be felt the same way.
For starters, in a package designed to raise around £25bn a year, most of the revenue will come from the threshold change. That means the percentage increase in cost of employing a lower-wage worker will be greater than the percentage increase in the costs of employing a higher-wage person.
In other words, employers of many lower-wage workers (think the hospitality sector) will likely be overrepresented among the 940,000 employers that the Office for Budget Responsibility estimates will lose out from the changes on a net basis.
Companies complaining about a budget are a certainty. But there is a corporate “tight middle” for which this change will be more difficult. Smaller private sector employers will be protected by changes to the employment benefit, which offers businesses with small NIC bills a discount or the chance to pay no NIC at all.
Meanwhile, large companies with the ability to pass along cost increases to consumers will do so. When this is not possible, Reeves is right: other efficiencies can be found to at least soften the impact.
Large retailers will likely introduce more automation, such as self-scanning of checkouts. Some companies might choose to hire more contractors instead of employing people directly.
It is certainly true that employers are likely to raise wages more slowly than they would have otherwise. When this is not possible (for example, minimum wage workers), some jobs may no longer be viable or may be replaced by technology. But it is in the middle ranks of British corporations where accusation of “employment tax” will hit harder.