UK Firms Set to Cut Jobs and Raise Prices as National Insurance Changes Bite

British businesses are preparing significant workforce reductions and price increases in response to the £25 billion rise in payroll taxes introduced by Chancellor Rachel Reeves during the October budget, according to new research.

The comprehensive survey, conducted by Censuswide for accountancy firm S&W, reveals that 33% of business owners with turnover exceeding £5 million plan to reduce their workforce in the coming year. The research, carried out in April and May, highlights that 46% of respondents intend to implement price increases to counter the elevated employment taxes.

The dramatic changes to employers’ national insurance contributions (NICs), which saw the main rate jump to 15% from 13.8% and the earnings threshold plummet to £5,000 from £9,100 on April 6, have sent shockwaves through the business community. The survey indicates that approximately 25% of companies have already begun implementing these defensive measures.

S&W partner Claire Burden emphasised the difficult choices facing business owners, noting that salary costs represent a substantial portion of most companies’ expenditure. Her colleague Alex Simpson highlighted that while an increase in employers’ rate was anticipated, the reduction in earnings threshold caught many businesses off guard.

Recent data from HM Revenue and Customs showed a concerning drop of 109,000 payrolled employees in the month to May, marking the steepest decline since May 2020. Despite these worrying indicators, economic growth has demonstrated resilience, with a 0.7% increase in the first quarter, though April saw a 0.3% contraction coinciding with the NICs implementation.

The Bank of England projects that the NICs increase could contribute up to 0.2 percentage points to the UK’s inflation rate, which climbed to 3.5% in April from 2.6% in March, adding further pressure to businesses already grappling with economic uncertainties.