19/01/2010

At a time when unemployment is continuing to rise there has been critical business reaction to the proposed increase in employers’ national insurance contributions (NICs) announced in the recent pre-budget report.

The report saw the Chancellor announce a proposed 1% rise in employers’ NICs from April 2011. Business leaders have criticised the plans as amounting to a ‘tax on jobs’ that will increase employment costs. Some analysts have, however, suggested that the effect will not be quite so simple. The increase in the employers’ NICs rise will eventually be passed on to employees by way of lower pay rises, thereby cancelling out any increase in the cost of employment.

But the period of modest wage growth currently being experienced will make it difficult to pass on the rise to employees immediately. Further, any more reductions in wage growth, combined with the significantly increased NICs for employees earning over £20,000, could reduce overall spending in the economy and result in reduced demand for labour.

Therefore, in an economic recovery already being predicted to generate only limited employment, the Chancellor’s announcements could further reduce any growth in employment.

If you wish advice and assistance to any employment matters please contact Jane Liddle on 01603 610481.