The government’s fiscal watchdog has said workers will be hit hardest by an upcoming increase in employers’ National Insurance (NI) contributions.
Chancellor of the Exchequer Rachel Reeves said in the Budget that from April employers will pay NI at a rate of 15% for wages above £5,000 and for those above £9,100 NI will be paid at a rate of 13.8%.
The Office for Budget Responsibility (OBR) calculated that three-quarters of the impact will be felt by staff as bosses hold back on pay rises and recruitment amid wage increases.
Professor David Miles of the OBR said it was “very likely” this would have a disproportionate impact on low-paid workers.
Professor Miles told the Treasury Select Committee on Tuesday that the OBR estimated that employers would only be able to absorb around a quarter of the lower profit impact of the NI changes.
The rest will be felt by workers, he said.
Asked whether he agreed with those who argued low-wage workers would be disproportionately affected, Professor Miles said “on the face of it, that makes perfect sense”.
Part of the reason, he said, is a lower threshold for employers to pay taxes.
However, he said the individual impact on workers was likely to be “somewhat offset” by the increase in the minimum wage announced in the Budget.
The OBR’s comments come after Labour’s manifesto claimed there would be no tax increases on “working people” following its first Budget in 14 years.
James Smith, research director at the Resolution Foundation think tank, believes the changes to NI are “an absolute tax on working people”.
“Even if it doesn’t show up in wages from day one, it will eventually lead to lower wages,” he said.
Chancellor of the Exchequer Rachel Reeves In last week’s budget she increased taxes on employers while saying she was “not immune” to the criticism.
She told the BBC the money raised would help put public finances “on a solid footing”.
The decision has been criticized by many businesses, including GPs, who believe it could impact on services for patients.
