Hospitality leaders hit back at employer £3.4bn NIC hike

Bosses at the country's top hospitality businesses are warning that the 1.2% rise in employer national insurance in April will inflict ‘unprecedented damage’

The hospitality sector will be hit with a £3.4bn bill for the higher NI when the rise kicks in creating a 15% rate for the majority of employers, with only the smallest businesses excluded. The increase in the rate has been exacerbated by the halving of the threshold limit to £5,000, which brings in many part-time workers, frequently making up much of the workforce in pubs, restaurants and hotels.

Over 200 hospitality businesses represented by UKHospitality, including Fuller’s, Mitchells & Butlers, Whitbread, Wetherspoon and IHG Hotel group, have written to the Chancellor, warning that the rise will result in drastic job cuts and reduced working hours for staff, the closure of small businesses and a reduction in investment plans.

Kate Nicholls, chief executive of UKHospitality, said the sector was calling for a new employer’s band from £5,000 to 9,100 with a lower rate of 5%, or an exemption for standard rate taxpayers working fewer than 20 hours per week, effectively targeting support for part-time and low paid workers.

The UKHospitality letter stated: ‘The changes to the NICs threshold are not just unsustainable for our businesses, they are regressive in their impact on lower earners and will impact flexible working practices which many older workers and parents rely upon. Unquestionably they will lead to business closures and job losses within a year.’

UKHospitality estimates that the threshold change brings thousands of staff into employer NICs for the first time and will hit the sector harder than the headline rate, while they also claimed that the rise was ‘regressive’ as the employer burden falls on lower paid workers.

‘The increase in employer contributions would have been damaging enough but changing the threshold is worse. Hospitality – from high street venues to the tourist and leisure economy and our catering sector – employs large numbers of part-time and lower earning employees.

‘The threshold change brings many team members into employer NICs for the first time. We estimate the threshold change may be four times the cost of the new headline rate.

‘There is no capacity to pass the costs onto customers. Businesses would be reluctantly forced to raise prices by 6-8%, fuelling inflation, yet could not realistically do so as our customers are at the end of their ability to pay more,’ the letter warned.

Retail is another sector facing a hike in employment costs as again the tend to hire a large number of part-time staff, wages are at national living wage or just over, and so the reduced £5k threshold will be an immediate cost to businesses from April.

There are also concerns the rise will trigger inflation, with supermarket giant Tesco facing a £250m annual hike in national insurance costs from April according to analysis by Morgan Stanley for the Sunday Times, while the combination of the rise in the national living wage across all ages from the same point will result in significantly higher employment costs.

At a Treasury Committee hearing last week, Chancellor Rachel Reeves told MPs ‘this was a reset Budget’.

When questioned by MPs about the impact of the employer NI rise and why she had not reversed the last government’s double cut in employee NI, Reeves stressed that the government had to ‘make some difficult choices and needed to plug that gap when we came in’.

‘Taking NI for employees back to the previous rate was not an option… to put that burden on working people was the wrong approach,’ she said.

To deal with the rise in employer NI rates, Reeves stressed: ‘Businesses are creative and show ingenuity, and businesses will improve productivity.

‘Small businesses struggle most with employer NI so we increased the employment allowance to £10,000 for a million smaller businesses so they will be paying no more or no less than they were before.’ 

While the doubling in the size of the employment allowance does give exemptions for smaller businesses at least, announced at the Budget.

While up to one million businesses will be protected, Tina McKenzie, policy chair of the Federation of Small Businesses said: ‘Larger small, and medium-sized, businesses will struggle with the rises in employer national insurance on top of the large costs from the government’s employment law plans. We’ve been very clear in our warning of the difficulty SMEs will be confronted with in meeting all of these changes at once – and the potential impact on jobs, wages and prices.’

With no precise timings or effective dates on the sweeping changes to employment law set out in the Employment Rights Bill, which are set to cost businesses a combined £5bn a year with no exceptions for even the smallest companies, the Chancellor’s plan to catalyse growth across the UK is very much in contention.

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