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Businesses face increases in employment costs of more than 8% unless the Chancellor steps in

The Chancellor must reconsider the increase to National Insurance Contributions from 1 April if small businesses are to survive writes David Hough.

Small businesses face significant pressure on salaries to keep up with inflation and tax rises, and the economy needs time to rebound or small businesses will fail. The Chancellor must now urgently reconsider the increase to National Insurance Contributions which come into effect in April.

Entrepreneurs with small businesses are having to make difficult decisions on pay as we approach April. Inflation is running at 5.4%, according to the latest figures published by the Office for National Statistics (ONS) with a tax increase of 2.5% effective at the same time due to the 1.25% increases to employee and employer national insurance contributions on the same date.

A business owner with a total employee cost of £1 million per year who aims to keep net pay for their employees the same in real terms, faces salary and social security increases of over £82,000 per annum (8.2%) by the time that inflation, national insurance increases, and the impact on pension auto enrolment payments are factored in.

A huge impact for small businesses

This cost has a huge impact on small businesses, especially those that are struggling with the impact of the Omicron variant. Those in retail, hospitality and travel dealing with the impact of low footfall are also amongst those most likely to be looking at above inflationary increases to salaries because of the increase in the National Living Wage. ONS figures show that the number of payrolled employees exceeds pre-Coronavirus levels demonstrating the pressure businesses are under to find labour.

These increases would only keep the employee at the same level in real terms at a time when the cost of living is increasing dramatically. This puts small business owners under significant pressure to maintain levels of pay or risk the loss of key employees.

Government coffers will be swelled by tax receipts on higher wages, and the freeze to personal tax bands until 2026 should enable the Chancellor to step back from increasing National Insurance payments.

Would you like to know more?

If you would like to discuss the above or how it may affect you and your business, please get in touch with David Hough or your usual Blick Rothenberg contact using the details on this page.

For press enquiries, please contact David Barzilay.