The research by the British Chambers of Commerce (BCC) surveyed more than 1,100 UK employers and found that the national insurance increase has caused negative impacts to 81% of businesses.
The main effects cited by respondents included increased prices for their services, planned investment for their businesses reduced or scrapped, and increased staff costs with employers expecting wages to increase by 5% over the next year.
The BCC stated that this increase, alongside the ‘toxic mix’ of surging inflation, rising energy costs and supply chain disruption, means it is ‘very hard to swallow’.
It also added that the tight labour market is already pushing up staff costs and that ‘the national insurance rise has only served to exacerbate that pressure without having a positive impact on recruitment’.
The BCC has called on the government to act to give businesses a chance to keep a lid on rising prices, boost productivity and ease cost pressures.
Hannah Essex, co-executive director, BCC, said: ‘Businesses are telling us that the rise in National Insurance contributions has been a body blow as they try to get back on their feet. With firms’ profits also taking a further hit, after two years of the pandemic, it is no surprise that their investment intentions are also weakening.
‘But it is not too late to change tack and push the increase back until firms are in a better place to take on the extra burden. The costs crises facing firms and people in the street are two sides of the same coin. If we can ease the pressure on businesses, then they can keep a lid on the price rises.
‘Acting now will also put businesses in a better position to create the future profits needed to fill tax coffers.’
The Chancellor Rishi Sunak has on multiple occasions defended the manifesto breaking increase stating that it was ‘necessary, fair and responsible’. He has also argued that the levy is progressive, with the highest 15% of earners paying more than half the revenues.
Sunak also announced in his 2022 Spring Statement that he was going to reduce income tax by 1p in 2024 which was a move that aimed to help the current cost of living crisis and there have been recent reports that the cut will be introduced in 2023 to help ease the crisis.
However, tax and advisory firm Blick Rothenberg stated that this move ‘does nothing’ to help the current crisis and will do little to lessen the impact of frozen rate bands.
Robert Salter, director, Blick Rothenberg said: ‘The 1% cut doesn't lessen the impact of the frozen rate bands and 20% bands for most people. The reality is that people being pushed into paying tax because of frozen personal allowances or paying tax at 40% or above could still be significantly worse off in many cases.
‘There is also the issue of whether the 1% would just affect regular income tax or also dividend taxes? I suspect at this stage, that the rate would only be for regular income tax and not necessarily for dividend taxes.
‘If so, this could easily, result in freelancers working through digital service companies facing high taxes which are, in part, designed to pay all the self-employment income support scheme, SEIS, and furlough grants - which a large number of them weren't actually able to benefit from.’
Blick Rothenberg stated that the government needs some ‘creative thinking’ on how to address the current crisis and their idea for the 1p cut to income tax ‘is not one of them’.
