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Business reaction to National Insurance proposals: overwhelmingly negative

“A drag anchor on jobs growth” an “anti-small business tax hike” and “targeting small company directors yet again”. That was the reaction from the British Chambers of Commerce, the Federation of Small Businesses, and the Confederation of British Industry on Boris Johnson’s plans to increase National Insurance contributions and the tax paid on share dividends.

For his part, the prime minister described the plans yesterday (Tuesday) as “responsible, fair, and necessary.”

The manifesto-busting tax hikes will raise £36 billion for the NHS and social care. But the proposals have provoked anger, with critics saying it will hit lower-income workers hardest – those earning £20,000 a year will pay an extra £130 a year while workers on £50K will pay an extra £505 – and create a fresh burden for employers.

Michael Blaken, accounts director at Optimum Professional Services in Swindon, explained: “Businesses, employed people and pensioners who are still working must all prepare to pay more tax, after the Government announced its plans to boost funds for the NHS and increase spending on social care.

“From April 2022, National Insurance will increase by 1.25 percent for businesses, employees and the self-employed.

“Then from April 2023, it will return to its former level and the new Health and Social Care Levy will be introduced, also at 1.25 percent.

“This will be paid by businesses, their employees and the self-employed and also by working pensioners, who cease to pay National Insurance once they reach retirement age.

“Those earning less than £9,564 won’t have to pay National Insurance or the new levy.

“Income from share dividends – earned by those who own shares in companies – will also see a 1.25 percent tax rate increase.

He commented: “The need to raise funds comes as no surprise in the wake of the pandemic, but what we didn’t know until the announcement was how this would be managed, whether through more borrowing, raising taxes or both.

“Any tax rises have an impact, and I think most people expected some kind of increase to help the NHS after the pandemic.

“It seems the Government decided that increasing National Insurance, which is felt by businesses and individuals alike, was the most palatable option.”

“This change is coming in, in April 2022, which gives eight months for businesses to adjust their budgets to take into account the National Insurance increase.”

Martin Gurney, tax partner at Haines Watts in Swindon, added: “We already know that someone had got to pay for the government funding that has been introduced to support the economy.

“Most of the commentary has been – and I share the view – that potentially this is following on too closely from the withdrawal of the Coronavirus Job Retention Scheme, which is phased out by 30 September 2021, with the new tax brought in six months later from April 2022.

“There are already concerns that supply chain issues and government Coronavirus support programmes around the world are likely to fuel inflation.

“These new measures will further fuel price inflation with employers seeking to pass cost increases on to consumers.

“These increases ultimately impact lower-income households disproportionately.”

Business organisations did not hold back. Suren Thiru, head of economics at the British Chambers of Commerce – represented locally by Thames Vally Chamber of Commerce and Business West – said: “Businesses strongly oppose a rise in national insurance contributions as it will be a drag anchor on jobs growth at an absolutely crucial time.

“Firms have been hammered by 18 months of covid related restrictions and have built up huge debt burdens.

“This rise will impact the wider economic recovery by landing significant costs on firms when they are already facing a raft of new cost pressures and dampen the entrepreneurial spirit need to drive the recovery.

“Businesses generate prosperity, create jobs and support communities. The focus should be on creating the best possible environment for them to grow and thrive so they can sustainably deliver the tax revenue needed to support our public services and the wider economy.” 

Ruth Lambert said, development manager for the South West at the Federation of Small Businesses, said: “These hikes will have business owners and sole traders feeling demoralised at the point when they’re trying to recover from the most difficult 18 months of their professional lives.

“For those thinking about starting up, they send completely the wrong message.

“Business owners who have done all they can to retain and support their staff during the pandemic are now being punished for that loyalty with an £11 billion increase in NICs, which essentially serve as a jobs tax.

“This regressive levy hits employers and sole traders without meaningful regard for how their business is performing. And this increase will stifle recruitment, investment and efforts to up-skill and improve productivity in the years ahead.

“At the same time those running companies, many of whom were left out of pandemic support measures, face a fresh assault on dividend revenue.

“It’s extremely disappointing to see the Government undermining the good work it did last year in raising the Employment Allowance to provide some protection for small employers.

“Instead of breaking manifesto promises, we had hoped this administration – which has repeatedly pledged its support for small enterprises – would build on that progress against a backdrop of spiralling input prices, skills shortages, supply chain disruption, the reintroduction of business rates and emergency loan repayments.

“This move marks an anti-jobs, anti-small business, anti-start up manifesto breach. The government should now increase the Employment Allowance to mitigate the damaging impacts of these hikes on the small firms that make up 99 percent of our business community.”

And Kitty Ussher, chief economist at the Institute of Directors, said: “This is an extraordinary time to be adding additional burden to business and the cost of employing staff, just as it looks to recover from the pandemic.

“It smacks of political opportunism, exploiting public sentiment at the expense of some of the most productive and entrepreneurial segments of the economy.

“The surprise new tax on dividends will yet again target small company directors. Incorporated sole traders and other owner-managers, who relied on dividend income, were the only group of workers that were not supported by government during the pandemic.

“Employees and the self-employed were provided with financial support to tide them over, but this group was not.

“While it may make sense in the long-term to align tax rates for all types of income, this government has shown through its actions a total lack of understanding to the very real difficulties faced by owners of the smallest businesses in Britain.”

And Fiona Scott, media consultant and South West ambassador for Forgotten Ltd, which lobbied on behalf of two million small limited companies excluded from pandemic support, said: “Owner-managed limited companies got little or zero support during the pandemic.

“Now those people who were excluded are facing a double whammy: NI contributions increased for themselves and any employees, and more tax of their dividends if they are able to even make a profit after not being able to trade effectively for over a year.

“So suddenly we’re not Forgotten or Excluded when it comes to paying the bloody bill. You couldn’t make it up.”