Chancellor Acknowledges Challenges of National Insurance Hike for Businesses

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Chancellor Rachel Reeves has admitted that businesses will face significant challenges in absorbing the planned increase in employers’ national insurance contributions. Speaking at The Yorkshire Post's Great Northern Conference in Hull, Reeves acknowledged the difficulties posed by the rise, which will see employers’ contributions climb to 15% starting April 2025.

 

“I’m not going to pretend that it’s going to be easy for businesses, or indeed for charities or local authorities, to absorb, especially the national insurance increase,” Reeves said. However, she defended the decision, emphasizing Labour's commitment during the general election not to raise taxes on working individuals. “We made a commitment... that we wouldn’t increase taxes on working people, because over the last few years, it has been working people that have had to bear the brunt of tax increases.”

 

Reeves pointed to Labour’s campaign pledge not to increase income tax, VAT, or national insurance for employees, a promise the party has adhered to. However, critics, including the Conservative Party, argue that Labour breached its manifesto promise by not differentiating between employee and employer contributions.

 

Reeves also justified the tax increases, stating, “That has meant we have had to increase taxes, particularly national insurance, but also some of the taxes on the wealthiest in society.”

 

The announcement has sparked concern among business leaders. Celebrity chef Tom Kerridge, who previously endorsed Labour during the general election, warned that the hike could have dire consequences for the hospitality sector. Speaking on Politics Hub with Sophy Ridge, Kerridge estimated that the increase would cost businesses like his an additional £800 to £850 per employee annually.

 

“There will be a huge amount of closures,” Kerridge cautioned. “We’ve already got high-profile names and Michelin-star restaurants that have decided to shut their doors. And when that starts to happen, it does begin to filter down.”

 

The rise in national insurance is also expected to impact charities and local councils, adding further strain on sectors already grappling with financial pressures.

 

During her speech, Reeves refrained from ruling out the possibility of future tax increases, despite making such a promise last week at the Confederation of British Industry’s annual conference. She explained that while the government has set its spending framework for the coming years, unforeseen economic shocks could necessitate adjustments.

 

“I have now set the envelope for government spending for the next few years, so I’m not going to need to come back and top that up, either with more borrowing or more taxes,” Reeves said. However, she added, “I can’t write five years’ worth of budgets in just five months — we don’t know what might happen in the future in terms of shocks to the economy.”

 

Reeves assured businesses that this budget represents a fresh start, stating, “We have wiped the slate clean. We will never have to do a budget like this again.”

 

The national insurance increase and broader fiscal measures have ignited a heated debate over their impact on businesses, charities, and the wider economy, leaving many questioning the balance between fiscal responsibility and economic resilience.

 

Based on a report by Sky News 2024-12-05