'We will see closures': The industries hit hardest by national insurance hike

Sky News

05-04-2025

The cost of having staff is going up this Sunday as the increase in employers' national insurance kicks in.
Chancellor Rachel Reeves announced in the October budget employers will have to pay a 15% rate of national insurance contributions (NIC) on their employees from 6 April - up from 13.8%.
She also lowered the threshold at which employers pay NIC from £9,100 a year to £5,000 a year, meaning they start paying at an earlier point on staff salaries.
This is on top of the national minimum wage rising, the business relief rate for hospitality, retail and leisure reducing from 75% to 40% and the rising cost of ingredients and services.
Sky News spoke to people working in some of the industries that will be hardest hit by the rise in NIC: Nurseries, hospitality, retail, small businesses and care.
Nearly all (96% of 728) nurseries surveyed by the National Day Nurseries Association (NDNA) said they will have no choice but to put up fees because of the NIC rise, leaving parents to pick up the shortfall.
The NDNA has warned nurseries could close due to the rise, with 14% saying their business is at risk, 69% reducing spending on resources and 39% considering offering fewer places with government-funded hours as 92% said they do not cover their costs.
Sarah has two children, with her youngest starting later this month, but they were just informed fees will now be £92 a day - compared with £59 at the same nursery when her eldest started five years ago.
"I'm not sure how we will afford this. Our salaries haven't increased by 50% during this time," she said.
"We're stuck as there aren't enough nursery spaces in our area, so we will have to struggle."
Karen Richards, director of the Wolds Childcare group in Nottinghamshire, has started a petition to get the government to exempt private nurseries - the majority of providers - from the NIC changes as she said it is unfair nurseries in schools do not have to pay the NIC.
She told Sky News she will have to find about £183,000 next year to cover the increase across her five nurseries and reducing staff numbers is "not off the table" but it is more likely they will reduce the number of children they have.
Joeli Brearley, founder of the Pregnant Then Screwed campaign group, told Sky News: "Parents are already drowning in childcare costs, and now, thanks to the national insurance hike, nurseries are passing even more fees on to families who simply can't afford it.
"It's the same story every time - parents pay the price while the government looks the other way. How exactly are we meant to 'boost the economy' when we can't even afford to go to work?"
Purnima Tanuku, executive chair of the NDNA, said staffing costs make up about 75% of nurseries' costs and they will have to find £2,600 more per employee to pay for the NIC rise - £47,000 for an average nursery.
"The government says it wants to offer 'cheaper childcare' for parents on the one hand but then with the other expects nurseries to absorb the costs of National Insurance Contributions themselves," she told Sky News.
"High-quality early education and care gives children the best start in life and enables parents to work. The government must invest in this vital infrastructure to make sure nurseries can continue to deliver this social and economic good."
HOSPITALITY
The hospitality industry has warned of closures, price rises, lack of growth and shorter opening hours.
Dan Brod, co-owner of The Beckford Group, a small southwest England restaurant and country pub/hotel group, said the economic situation now is "much worse" than during COVID.
The group has put plans for two more projects on hold and Mr Brod said the only option is to put up prices, but with the rising supplier costs, wages, business rates and NIC hike they will "stay still" financially.
He told Sky News: "What we're nervous about is we're still in the cost of living crisis and even though our places are in very wealthy areas of the country, Wiltshire, Somerset and Bath, people are feeling the situation in their pockets, people are going out less."
Mr Brod said they are not getting rid of any staff as their business strongly depends on the quality of their hospitality so they are having to make savings elsewhere.
"I'm still optimistic, I still feel that humans need hospitality but we're not valued as an industry and the social benefit is never taken into account by government."
Aktar Islam, owner/chef at two Michelin-starred Opheem in Birmingham, said the NIC rise will cost him up to £120,000 more in staff costs a year and to maintain the financial position he is in now they would have to make "another million pounds".
He got emails from eight suppliers on Thursday saying they were raising their costs, and said he will have to raise prices but is concerned about the impact on diners.
The restaurateur hires four commis chefs to train each year but will not be able to this year, or the next few.
"It's very short-sighted of the government, you're not going to grow the economy by taxing hospitality out of existence, these sort of businesses are the lifeblood of our economy," he said.
"They think if a hospitality business closes another will open but people know it's tough, why would they want to do that? It's not going to happen."
The chef sent hundreds of his "at home" kits to fellow chefs this week for their staff as an acknowledgement of how much of a "s*** show" the situation is - "a little hug from us".
RETAIL
Some of the UK's biggest retailers, including Tesco, Boots, Marks & Spencer and Next, wrote to Rachel Reeves after the budget to say the NIC hike would lead to higher consumer prices, smaller pay rises, job cuts and store closures.
The British Retail Consortium (BRC), representing more than 200 major retailers and brands, said the costs are so significant neither small or large retailers will be able to absorb them.
Andrew Bailey, the governor of the Bank of England, told the Treasury committee in November that job losses due to the NIC changes were likely to be higher than the 50,000 forecast by the Office for Budget Responsibility (OBR).
Nick Stowe, chief executive of Monsoon and Accessorize, said retailers had the choice of protecting staff numbers or cancelling investment plans.
He said they were trying to protect staff numbers and would be increasing prices but they would likely have to halt plans to increase store numbers.
Helen Dickinson, head of the BRC, told Sky News the national living wage rise and NIC increase will cost businesses £5bn, adding more than 10% to the cost of hiring someone in an entry-level role.
A further tax on packaging coming in October means retailers will face £7bn in extra costs this year, she said.
"This huge cost burden will undoubtedly reduce investment in stores and jobs and is likely to lead to higher prices," she added.
SMALL BUSINESSES
A massive 85% of 1,400 small business owners surveyed by the Federation of Small Businesses (FSB) in March reported rising costs compared with the same time last year, with 47% citing tax as the main barrier to growth - the highest level in more than a decade.
Just 8% of those businesses saw an increase in staff numbers over the last quarter, while 21% had to reduce their workforce.
Kate Rumsey, whose family has run Rumsey's Chocolates in Wendover, Buckinghamshire and Thame, Oxfordshire, for 21 years, said the NIC rise, minimum wage increase and business relief rate reduction will push her staff costs up by 15 to 17% - £70,000 to £80,000 annually.
To offset those costs, she has had to reduce opening hours, including closing on Sundays and bank holidays in one shop for the first time ever, make one person redundant, not replace short-term staff and introduce a hiring freeze.
The soaring price of cocoa has added to her woes and she has had to increase prices by about 10% and will raise them further.
She told Sky News: "We're very much taking more of a short-term view at the moment, it's so seasonal in this business so I said to the team we'll just get through Q1 then re-evaluate.
"I feel this is a bit about the survival of the fittest and many businesses won't survive."
Tina McKenzie, policy chair of the FSB, said the NIC rise "holds back growth" and has seen small business confidence drop to its lowest point since the first year of the pandemic.
With the "highest tax burden for 70 years", she called on the chancellor to introduce a "raft of pro-small business measures" in the autumn budget so it can deliver on its pledge for growth.
She reminded employers they can claim the Employment Allowance, which has doubled after an FSB campaign to take the first £10,500 off an employer's annual bill.
1:46
CARE
The care sector has been warning the government since the October that budget care homes will be forced to close due to the financial pressures the employers' national insurance rise will place on them.
Care homes receive funding from councils as well as from private fees, but as local authorities feel the squeeze more and more their contributions are not keeping up with rising costs.
The industry has argued without it the NHS would be crippled.
Raj Sehgal, founding director of ArmsCare, a family-run group of six care homes in Norfolk, said the NIC increase means a £360,000 annual impact on the group's £3.6m payroll.
In an attempt to offset those costs, the group is scrapping staff bonuses and freezing management salaries.
It is also considering reducing day hours, where there are more staff on, so the fewer numbers of night staff work longer hours and with no paid break.
Mr Sehgal said: "But what that does do unfortunately, is impact the quality you're going to be able to provide, at a time when we need to be improving quality, but something has to give.
"The government just doesn't seem to understand that the funding needs to be there. You cannot keep enforcing higher costs on businesses and not be able to fund those without actually finding the money from somewhere."
He said the issue is exacerbated by the fact local authority funding, despite increasing to 5%, will not cover the 10% rise.
"It's going to be a really, really tough ride. And we are going to see a number of providers close their doors," he warned.
Nadra Ahmed, executive co-chair of the National Care Association, said those who receive, or are waiting to access, care as well as staff will feel the impact the hardest.
"As providers see further shortfalls in the commissioning of care services, they will start to limit what they can do to ensure their viability or, as a last resort exit the market," she said.
"This is very short-sighted, with serious consequences, which alludes to the understanding of this government."
A Treasury spokesperson told Sky News the government is "pro-business" but has "taken the difficult but necessary decisions to wipe the slate clean and properly fund our public services after years of declines".
"Our budget choices have already delivered an NHS with falling waiting lists, a £3.7bn rescue package for social care, and vital protection for Britain's small businesses," they said.
"We're making tough choices today to secure a better tomorrow through our Plan for Change. By investing in economic growth and early years education while capping corporation tax, we're putting more money in working people's pockets and giving every child the best start in life."