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The Herald Scotland

Why should staff foot bill for NI rise at these companies?

This shows more than 60% of Scottish businesses have adjusted their operations because of the rise in employers' national insurance. Detailing the nature of these adjustments, Fraser of Allander observed that 'many' businesses were 'adapting to this through a combination of strategies: cutting back on hiring or cancelling increases in their workforce, adding the extra costs on to prices, and reducing employee benefits and compensation packages'. These are grim effects, particularly those actions relating to staff and potential employees. And, when Chancellor Rachel Reeves hiked employers' national insurance contributions in the incoming Labour Government's first Budget on October 30 last year with the aim of raising £25 billion a year, you would imagine this was not the response for which she was hoping. What is more, the huge reaction that has been seen so far from businesses looks to be far from the end of the matter. Fraser of Allander's survey of more than 300 businesses - for the second quarter - found nearly 40% expect to make more adjustments down the road in response to the rise in employers' national insurance. Sanjam Suri, knowledge exchange fellow at Fraser of Allander, said: 'While most businesses have adjusted to changes in NICs (national insurance contributions), nearly 40% of firms plan on making more adjustments, suggesting that the full impact of these changes [is] yet to materialise.' And Fraser of Allander observed: 'Changes to employer national insurance contributions, announced in the autumn 2024 UK Government Budget, kicked in at the beginning of Q2 and have significantly impacted business planning. 'Nearly two-thirds of businesses reported having adjusted their operations, whilst almost two-fifths anticipated requiring additional adjustments in response to the changes that have resulted in higher employee costs for businesses. Such policy changes, combined with ongoing inflationary pressures, continue to contribute to an overall challenging cost environment for Scottish businesses.' Read more Industry body UKHospitality this week flagged increased employers' national insurance contributions as it highlighted figures showing job postings for temporary work in the sector this summer were down 25% year on year, 'threatening student jobs'. It observed: 'There are 22,369 fewer unique postings for jobs in hospitality this year, compared to the same period in 2024, according to new data from the Recruitment and Employment Confederation.' And UKHospitality declared: 'This drastic fall in hiring follows significant changes to employer NICs, most notably the lowering of the threshold announced in last year's Budget, which have resulted in £3.4 billion additional annual cost for hospitality businesses. Since that announcement, 84,000 jobs have been lost in the sector.' There is no doubting the widespread impact of the hike in employers' national insurance contributions. However, it is important to realise the broad range of financial situations in which businesses faced with this hike find themselves. For some businesses, the hike in employers' national insurance represents a genuinely major blow and one that they must react to in order to ensure their continued viability. It is understandable that such businesses might view themselves as having no alternative but to cut back on hiring, or restrict or not award pay rises. Some might even cut jobs, although hopefully they would look at every possible alternative before doing so, such as reducing other costs or raising prices. However, it is also important to realise that some firms which have cut back on hiring, reduced employment, or clamped down on staff remuneration are making big profits. It is surely absolutely reasonable to ask why such businesses cannot simply treat the rise in employers' national insurance contributions as a tax decision that is beyond their control, and absorb this increased cost by shaving a little off what will in some cases be handsome profit margins. Read more In this context, it is worth recalling that the Conservatives' move, after they came to power in 2010, to gift huge cuts in corporation tax to businesses hardly provoked a hiring spree. Business investment was also lamentable, as company bosses kept their hands in their pockets and lapped up the tax break. Surely now that the tax move is occurring in the opposite direction, it might be reasonable to expect those companies which are making good profits not to make their staff or potential employees foot the bill for the rise in national insurance contributions. Especially so given workers did not share in the bonanza when companies were benefiting from those Tory cuts in corporation tax in the wake of the global financial crisis at a time when the population as a whole was being laid low by the Conservatives' austerity. Clearly, passing the increased costs arising from the national insurance hike on to customers is more palatable than companies taking it out on their employees. However, here again, companies should consider whether they need to do this, and indeed whether it is in the long-term interests of the business. The same applies in the context of restricting employee remuneration or cutting workforces to a point where remaining staff are over-burdened. In sectors where there is plenty of staff mobility, companies should remember that employees can vote with their feet. Also, from an economic standpoint, it is lamentable if companies which could afford to do otherwise look to employees' pockets to pay for the rise in national insurance contributions. Household finances are under enough pressure without employees bearing this burden. These are the people who spend their money on the goods and services offered by companies. This is something which on occasion seems to be forgotten by those business leaders with magpie-like eyes on the bottom line, who often take too much of a short-term view and squeeze out too much profit to the long-term detriment of the enterprise.