The Institute of Directors is lobbying the government for ‘targeted changes’ to the Employment Rights Bill to improve business confidence and reduce the tax burden
Minimum wage rises and a hike in employers’ National Insurance are due to come into force in April, creating concern across business and stalling growth plans. Office for National Statistics (ONS) data showed a decline in employment in December as a result of the Budget on 30 October.
Responses to an IoD survey conducted in January found declining levels of confidence, with businesses calling for a reduction in the tax burden as their major priority. Over 58% of the 687 respondents said this would improve confidence levels going forward.
However, it is unlikely this burden will reduce with employers’ National Insurance increasing to 15% from 1 April.
Analysis by financial services specialist Novuna has found that the hike in National Insurance could end up costing businesses £28bn a year, based on a conservative estimate, with the average increase per employee across all salary bands being £842. London businesses will end up paying the most on average, with an employee on the average salary in London costing £1,010 more over the year.
Scottish businesses will end up paying the second highest, with each employee on an average salary here costing £896 more.
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Theresa Lindsay, director at Novuna said: ‘The £28bn National Insurance tax bill represents a significant financial burden for UK businesses across all industries and will inevitably force many businesses to radically rethink their hiring and pricing strategies in order to remain sustainable for the long term.
‘We’re already seeing the fallout across the sectors we operate in, as businesses grapple with impending cost pressures and explore competitive funding options to maintain liquidity and help them navigate the challenges.
‘The added concern is the wider knock-on effect across the economy, if businesses scale back or worse still, stop trading as a result of this tax hike, we could see significant disruption across supply chains which would stall growth in the UK economy.’
Due to the majority of employees’ being in the basic rate band of income tax, these employees are set to be the biggest burden to businesses, increasing business cost by £16.7bn in 2025/26.
The IoD survey also found deep concerns about the changes to employment law, with 41.5% of respondents saying a scaling back of this would improve their confidence, followed by an improved trade deal with the EU (35%). Over one in four said that a cut in interest rates would also help, followed by just under a quarter saying the tax system needs to be made less complex.
Alexandra Hall-Chen, principal policy advisor for employment at the Institute of Directors, said: ‘The reforms contained in the Employment Rights Bill, coupled with upcoming rises in employers’ National Insurance Contributions and the minimum wage, have had a demonstrably damaging effect on employers’ hiring intentions by increasing the costs and risks associated with hiring. Our data shows that employer hiring intentions remain around lows reached in 2020.’
The IoD has listed four areas where the Employment Rights Bill could be amended, starting with the planned introduction of protection against unfair dismissal, urging this to be changed to a minimum six months of service, rather than on day one. As well as this the IoD stated that it should ‘retain one waiting day’ before employees can access statutory sick pay (SSP).
Currently an employee can claim unfair dismissal only after two years of service, but the IoD suggested six months would at least give companies some assurance that they can ‘correct hiring mistakes’.
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