UK's 'tax on employment' is hurting business, says Centrus CEO

UK’s ‘tax on employment’ is hurting business, says Centrus CEO

Posted by author February 10, 2025 Bussiness

The government’s decision to increase employer national insurance contributions (NICs) from April has raised concerns among business leaders, casting doubt on Keir Starmer’s ability to fulfil his pledge to make the UK the fastest-growing economy in the G7, according to Centrus CEO Phil Jenkins.

In a recent Yahoo Finance Future Focus interview, the financial advisor’s boss gave a stark assessment of the potential economic impact of the move, warning that it could stifle growth and damage business confidence.

In the 2024 autumn budget the chancellor, Rachel Reeves, announced three significant changes to employer NICs from 6 April. The rate will increase from 13.8% to 15%, while the secondary threshold – the point at which employers begin paying NICs on their employees’ earnings – will come down from £9,100 to £5,000 per year.

The employment allowance – which provides relief for businesses with employer NIC bills of £100,000 or less in the previous tax year – will be increased.

Jenkins claimed business confidence was already on fragile footing even prior to the announcement of the new policies in October.

“There was obviously this messaging put out by Rachel Reeves and the government about how terrible the public finances were and how it’s going to be a very difficult few years ahead, paving the way for tax increases generally,” he said.

This pre-budget rhetoric appears to have taken its toll. The latest Institute of Directors business confidence survey has recorded its lowest levels since the COVID-19 lockdowns, and purchasing managers’ index (PMI) data suggests the UK economy is contracting.

“The economy seems to be heading in a negative direction after the budget,” Jenkins told Future Focus.

The threshold drop means businesses will have to start paying the levy at a much lower salary level.

“Anyone who employs people in the UK will be impacted by this … but it has a disproportionate impact on companies that have lower-paid employees, such as those in hospitality, pubs, restaurants, hotels, and retail,” said Jenkins. “Unfortunately, these are sectors that are already struggling.”

Indeed, UKHospitality has warned that the industry faces an additional £1bn in costs starting in April as 774,000 workers become newly eligible for employer NICs – putting jobs and businesses at risk.

The industry body, which represents thousands of restaurants, hotels, pubs, cafés, and nightclubs, is urging the government to reconsider or delay the tax changes to safeguard jobs.

The organisation said 1.2 million hospitality workers currently fall outside employers’ NIC obligations, but that will drop to 450,000 as the lower threshold comes into effect. The projected £1bn burden comes on top of an additional £2.4bn in rising costs set to hit the sector in April, including higher wage bills.

Critics have dubbed the upcoming changes as a “jobs tax” and a “war on business”, arguing that it will disincentivise hiring and investment. Jenkins concurred, calling it “a tax on employment”.

“If you have the option of investing and hiring people in the UK versus investing and hiring in a more tax-friendly jurisdiction, it will certainly change behaviours,” he suggested.

Jenkins cited a recent Tax Institute report that placed Britain 34th out of 38 Organisation for Economic Co-operation and Development (OECD) countries in terms of tax competitiveness.

“We were already languishing near the bottom before the budget, and I suspect we might slip further,” he said.

Jenkins believes that the prime minister’s pledge to make the UK the fastest-growing economy in the G7 appears in jeopardy in light of the tax changes.

He claimed the government has been noticeably quiet about this commitment of late.

“It was interesting to see this week – it’s not been shelved, but it certainly seems to have been quietly sidelined,” he said.

The impact of the higher tax burden may accelerate capital flight, with high-net-worth individuals and businesses seeking more favourable tax environments abroad, Jenkins warned.

“Countries like Dubai and Portugal are rolling out the red carpet to businesses and high earners, whereas the UK seems to be making it harder for them to stay,” he said.

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