IoD: National Insurance rise will hit hardest those sectors that suffered most from Covid

The National Institute of Economic and Social Research (NIESR) has today published a policy paper, part-funded by the Institute of Directors, analysing the impact of the UK Government’s planned increase to National Insurance Contributions, ‘The New Employment Tax’.

The analysis finds that the tax “adds needless complexity to the tax system, encourages self-employment rather than employment, and hits hardest the labour-intensive sectors that suffered most from Covid. It also encourages a shift away from labour-intensive sectors and reduces the UK’s international competitiveness.”

In the absence of an official view, the IoD is pleased to have the opportunity to improve the national conversation by supporting NIESR to conduct its own independent assessment of the effect on the UK economy of this tax rise.

Commenting on the policy paper, Kitty Ussher, Chief Economist at the Institute of Directors, said:

“When the Government rushed legislation through Parliament to raise employers’ national insurance, it was unable to tell us the scale of its effect on the UK economy, beyond that the macroeconomic impact would be ‘significant’.

“What we find is that the proposed tax rise acts as a dampener on investment that in the longer-run reduces GDP. It disincentivises skills investment. It will reduce UK international competitiveness by reducing the attractiveness of the UK as a location. The firms that Covid hit the hardest will suffer the most, particularly distribution, transport, hotels and restaurants. The burden will fall on a combination of employees, firms, suppliers and consumers and also adds, in NIESR’s view, ‘unnecessary complexity’ to the tax system.

“We are now looking for a recognition in Wednesday’s Budget that this flat tax on employment is a step too far. In the short term it has already had real and negative effects on the business climate; in the longer run it goes against the Government’s stated policy to encourage UK firms to invest and grow.”