Business Outlook Survey: Businesses brace for National Insurance increase

• 82% of firms surveyed say the National Insurance (NI) rise will impact their business
• Most responding businesses say the increase in NI will impact recruitment (58%) and prices (54%)
• Over three quarters (79%) of businesses do not feel the government has properly assessed the impact of its new policies
• The majority of firms (77%) are worried about the speed policy changes are being made
• 55% of firms say plans to change statutory sick pay will impact either their investment, recruitment, prices or day-to-day operations.

The overwhelming majority of businesses say the rise in employer National Insurance contributions will force them to change their plans, according to new research by the BCC Insight’s Unit, in partnership with professional services firm AAB.

With under six weeks until the NI rise comes in, 82% of firms say the tax hike will cause them to rethink. With 58% of surveyed businesses saying it will impact recruitment plans, and 54% that it will affect their prices. More than a third of firms suggest investment (36%) and day-to-day operations (30%) will be impacted. Only 18% feel the rise is unlikely to cause any change.

Over 1,200 businesses took part in the online research, carried out between Monday 20 January and Monday 10 February. 91% of the firms who took part were SMEs (fewer than 250 employees).

The survey shows most firms are dissatisfied with the policy-making process. Over three quarters (79%) of responding businesses do not feel the impacts of new policies are being properly assessed and only 14% believe they are. A similar proportion, 77%, do not feel changes are moving at the right pace, while 16% do. But businesses were more likely to say they understood the rationale for policies – 42% said they understood why new policies are being made, although a larger proportion, 52%, did not.

The findings also highlight significant concern about elements of the proposed Employment Rights legislation. The majority (55%) say the planned changes to statutory sick pay will force them to change their plans, including 33% saying it will change recruitment plans. Against this, 45% think that it is unlikely to cause their organisation to make any changes.

Just under half (45%) of businesses say ‘right to switch off’ proposals will impact their plans, including 36% feeling it will affect day-to-day operations. Just over half (55%) do not foresee it causing them to make any changes.

What businesses say:

“Increase in NI will probably mean we have to make redundancies to cover additional cost” –Medium manufacturing firm in East Midlands

“NIC changes will probably discourage me from recruiting and may result in job losses.”- Small marketing firm in Southeast England

“NICs will have a direct impact on profitability, therefore stopping investment in people and growth.” – Small retail firm in East Midlands

“NICS will cost us £100,000”- Medium manufacturing firm in West and North Yorkshire

“Current Government policies make it unviable to continue trading for no return.”- Micro consulting firm in London

Alex Veitch, Director of Policy at the British Chambers of Commerce said:

“The clock is ticking down to the National Insurance rise, and firms are already telling us they are sitting on a powder keg of costs. Most are saying they will have to raise prices and reconsider recruitment plans. That’s unlikely to create an environment that fosters growth, the key priority for the government. Ministers need to read the room and recognise the impact this tax hike will have.

The government has pledged to retain the National Insurance tax position through the life of this parliament, but our new evidence should give pause for thought. We need the government to publish a wider tax roadmap for business, setting out the direction of travel for costs like national insurance and business rates. Business rate reform must be an urgent priority, creating a system that incentivises investment. Getting on with planning and skills reforms will also remove blockers to growth.

Our survey also shows growing concern about aspects of the government’s employment rights legislation. Some of the proposals are completely disproportionate to the reality of how businesses are operating. Ministers should allow more time for consultation with businesses about the policy details and implementation. The government must listen and think again. We welcome recent announcements on infrastructure projects which will help boost local economies and supply chains across the country. The upcoming strategies on industry, infrastructure and trade are also vital to help shape the economy for the long-term.

But that’s a small comfort for businesses feeling the cost pressure of National Insurance right now. With prices likely to rise and recruitment challenges ahead, the outlook remains deeply concerning.”

Emma Lancaster, Chief Executive at AAB, said:

“Bearing the burden of increased costs while maintaining profitability will be a challenge for all businesses across the UK. Our team at AAB is providing critical support for our clients, enabling them to navigate the cost challenges while also achieving their strategic goals.

We understand the concern businesses have in relation to the looming increase of employer National Insurance contributions, an additional challenge in an already complex trading environment. Each business will feel the impact, and knowing this, it has never been more important for all businesses to invest in planning for what’s coming, with sound financial data being crucial in making the best decisions.

Our clients are also closely monitoring the implications of upcoming changes to UK employment rights, with the support of AAB’s HR advisory team. Staying informed and prepared for these developments should be another key focus for business owners.”