Tax alert: National Insurance raid could see UK economy lose 130,000 jobs, new analysis claims

Posted by author November 29, 2024 Jobs

The recently announced hike to National Insurance could cost the UK economy around 130,000, according to new analysis from Bloomberg Economics.

As part of her Autumn Budget, Chancellor Rachel Reeves launched a tax raid on employers by raising the rate paid on National Insurance contributions from 13.8 per cent to 15 per cent.

This decision by the new Labour Government has received backlash from other political parities and the public due to Prime Minister Keir Starmer’s electoral pledge to not raise taxes on “working people”.

According to the Chancellor, “tough decision” need to be made to plug the £22billion “black hole” in the public finances she claims has been left by the Conservatives’ time in office.

Businesses, including major retailers such as Asda, Sainsbury’s and Tesco, have urged Reeves to reconsider the policy decision.

Retailers have cited the likely cost on businesses with store closures and job losses if the National Insurance raid goes ahead.

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Job losses could be a consequence of Reeves’s National Insurance raid

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Research conducted by Bloomberg Economics indicates up to 130,000 jobs would be wiped out if companies responded to the tax rise by primarily cutting employment.

This would represent a 0.4 percentage point hike in unemployment and could result in the Bank of England cutting interest rates quicker than forecast.

Notably, analysts did not think this was the most likely outcome and estimate that the tax raid will likely be paid for by balancing the books between wages, prices and margins.

In Bloomberg’s base case, unemployment would go up by 0.1 percentage points which suggests job losses are likely to remain a potential issue in the months ahead.

Similar research carried out by Deutsche Bank estimated that around 100,000 jobs could be lost due to the overhaul to the tax system.

According to Bloomberg Economics, if companies raised prices to offset the cost of the National Insurance raid, then inflation would go up by 0.9 percentage points higher than it otherwise would have been by April 2026.

Addressing the Confederation for British Industry’s (CBI) annual conference earlier this week, Rain Newton Smith sounded the alarm that the tax rise would “hit growth”.

She explained “[Companies] are looking with heavy hearts to cut training and investment, delay decarbonisation projects, or pass on costs to customers.”

Rachel Reeves asserted that ‘tough decisions’ needed to be made at the BudgetGB News

Despite this criticism, Reeves has remained adamant that raising the National Insurance for employers in the correct course of action.

Speaking at the same conference, the Chancellor shared: “I have heard lots of responses to the government’s first budget but I have heard no alternatives.

“We have asked businesses and the wealthiest to contribute more. I know those choices will have an impact. But I stand by those choices as the right choices for our country.”