Tax hike could cause unemployment to rise by 50,000

An analysis looking into the potential damage caused by the 1.25% increase in NICs has indicated that as many as 50,000 more people could be left unemployed.

The Federation of Small Businesses (FSB) warns that the jobs market could be impacted even more with the end of the job retention scheme.

Government figures show that just 640,000 small businesses will receive full protection from its planned Employer NICs hike thanks to the Employment Allowance. However, this figure represents just 10.5% of the SME community.

FSB National Chair Mike Cherry, said, “The government’s regressive jobs tax hike will put jobs at risk, stifle start-ups and prevent new jobs from being created.

“It could mean 50,000 more people out of work after it takes effect in April. That means 50,000 livelihoods harmed – 50,000 people who would otherwise be at work in our economy.

“Combined with other rising employment costs – and firms having to make tough decisions about the futures of those who have been supported by the job retention scheme – that 50,000 figure could easily end up being a good deal greater.

“At the same time, the combination of NICs and dividend taxation hikes will deter those thinking about launching their own enterprise from taking the plunge and spurring our economic recovery.

“The government often celebrates the existence of six million small businesses in the UK – the majority of which are sole traders, a group which will be hit especially hard by the NICs rise.

Cherry added, “At the same time, the extra tax on company directors adds insult to injury after a gruelling 18 months during which they received no income support from the government whatsoever. We put detailed proposals to government to address this oversight but they were not taken forward. Recent decisions around IR35 legislation will see many more people impacted by the tax increases announced yesterday.

“Longer-term impacts on growth and productivity are harder to calculate – but will be enormous. Given the NICs hike is being debated and voted on in Parliament, the absence of a government estimate of the jobs impact marks a glaring omission.

“The rise acts as a brake on employment, another reason in the ‘no’ column for employers considering expansion, and another reason in the ‘yes’ column if they’re thinking about cutting staff numbers. The real-world impact will be huge.

“The government should now move to protect more small business owners, directors and sole traders from these hikes – as things stand the overwhelming majority will be hit – starting with an increase in the Employment Allowance.

“Taxing the small business owners and freelancers who serve our local economies, and who have endured a terrible 18 months, just at the moment when they’re trying to get back on their feet will undoubtedly stifle efforts to recruit, retain and reskill over the critical years ahead, hampering our economic recovery in the round.”

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