In April, the government’s decision to increase employers’ National Insurance contributions from 13.8% to 15%, combined with a drop in the payment threshold to just £5,000, has sent shockwaves through the business community. While policymakers frame this as a way to fund vital public services, the harsh reality is that this move threatens businesses, jobs, and the overall economy. Here’s why this hike is a terrible idea and how it’s setting up employers—and employees—for a tough year ahead.
1. A Massive Blow to Small Businesses
For small businesses, every penny counts. With the threshold for employer National Insurance contributions dropping from £9,100 to £5,000, even businesses with just one or two employees are being hit hard. This effectively drags more small employers into the tax net, making it harder for them to survive.
The increased rate of 15% further tightens the noose. Employers are being forced to pay a larger chunk of their payroll toward taxes, leaving less to reinvest in their businesses. For many, this means cutting back on hiring, freezing wages, or even laying off staff.
2. Stifling Job Creation
Higher employer National Insurance is effectively a tax on jobs. At 15%, businesses are now paying more per employee, discouraging them from hiring. For startups and small businesses, which already operate on razor-thin margins, this hike makes it far less appealing to expand their workforce.
The knock-on effect? Fewer job opportunities, especially for younger or entry-level workers. Employers may also reduce working hours or shift to freelance and gig-economy contracts to avoid the increased costs.
3. Discouraging Economic Recovery
Coming off the back of Brexit, COVID-19, and rising inflation, businesses are already navigating stormy waters. Forcing employers to shoulder a heavier National Insurance burden is a blow to the fragile recovery many sectors are experiencing. Instead of encouraging investment and growth, this policy penalizes businesses trying to get back on their feet.
As businesses tighten their belts, the ripple effect spreads to the economy as a whole. Reduced hiring, stagnant wages, and decreased spending power all contribute to slower growth—and ultimately, everyone loses.
4. Unfair to the Backbone of the Economy
Small and medium-sized enterprises (SMEs) make up 99.9% of UK businesses and account for more than half of all private sector employment. Yet, this increase in employer National Insurance disproportionately impacts these smaller players, who lack the financial buffers of larger corporations.
For example, a business with five employees earning £25,000 each will now pay an extra £1,500 a year in National Insurance—money that could have been spent on wages, training, or expansion.
5. A Stealth Tax on Workers
While this policy directly affects employers, its impact inevitably trickles down to employees. Higher employer contributions mean businesses have less money to offer pay raises or invest in employee benefits. Workers end up shouldering the indirect burden of this “stealth tax” as their earnings stagnate and job security becomes more precarious.
6. Inequitable Threshold Change
Lowering the threshold for employer contributions to £5,000 brings an even greater number of businesses into the tax bracket, including sole traders and micro-businesses. These are the same businesses that rely on part-time workers, apprentices, and lower-income employees—precisely the people most in need of job opportunities.
The £5,000 threshold makes it almost impossible for micro-businesses to stay competitive, forcing many to cut costs or close shop entirely. This move feels less like a fair tax policy and more like a targeted assault on the smallest, most vulnerable businesses.
7. Alternatives are Being Ignored
Raising employer National Insurance isn’t the only way to generate revenue. Alternatives like taxing large corporations, closing tax loopholes, or introducing a windfall tax on energy companies could raise funds without crippling small businesses. But instead of targeting those with deep pockets, the government is squeezing the lifeblood of the economy—small businesses and hardworking employers.
8. Long-Term Economic Risks
The increase may raise short-term funds, but the long-term consequences are far more damaging. Businesses struggling to manage higher costs may go under, leading to job losses and lower overall tax revenues. The increased costs could also push businesses to automate jobs or outsource work abroad, further eroding the UK’s economic base.
Conclusion: Stop Punishing Employers
The rise in employer National Insurance to 15%, coupled with the threshold drop to £5,000, is a shortsighted policy that disproportionately affects small businesses, stifles job creation, and slows economic recovery. Instead of empowering employers to grow, innovate, and hire, this move penalizes them at a time when they’re already struggling.
It’s time for the government to rethink its approach. Supporting businesses, not punishing them, is the key to building a thriving, resilient economy. The UK needs policies that encourage growth, protect jobs, and share the tax burden fairly—because when employers thrive, we all benefit.
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