Rachel Reeves’ proposed changes to National Insurance (NI) contributions could lead to the loss of 100,000 jobs, as businesses grapple with higher costs, according to analysis by Deutsche Bank.
The increase in employer NI contributions, set to take effect in April, is expected to strain the jobs market further, with companies cutting back on hiring and freezing new positions.
Deutsche Bank Issues Warning
Sanjay Raja, an economist at Deutsche Bank, warned that the impact on employment could be double the Office for Budget Responsibility’s (OBR) prediction of 50,000 job losses. He stated:
“Given that the increase in NI contributions is ultimately a payroll tax, firms’ payroll decisions will come under significant scrutiny going forward. This won’t happen all at once, but we’ll see declines in hiring and employment growth, with some firms adjusting more immediately to the tax increase.”
Deutsche Bank estimates that over 100,000 current and future jobs could be lost as a result of the changes.
NI Changes to Take Effect in April
The Chancellor announced that from April, employer NI contributions will rise from 13.8% to 15%, while the wage threshold for contributions will drop from £9,100 to £5,000 per year. The UK Treasury expects the move to generate £25bn for public finances.
Reeves defended the plan, claiming it does not breach Labour’s manifesto pledge not to raise NI contributions, as the changes only affect employers, not employees directly.
Impact on Wages and Inflation
Deutsche Bank also warned that workers who remain employed are likely to feel the effects of the tax hike through slower pay growth.
Pay increases are expected to be £5.6bn lower than previously forecast, with average wage growth now predicted to reach 3.75% next year, down from 4.25%.
In addition, businesses struggling with low profit margins may pass on the increased costs to consumers.
Deutsche Bank estimates that £6.5bn of the tax burden will be shifted to customers through higher prices, exacerbating inflation pressures.
Prices are expected to climb further, pushing inflation above the Bank of England’s 2% target in the coming months.
A Challenging Jobs Market
The jobs market is already showing signs of strain, with Deutsche Bank warning of further pressure as employers adjust to the higher payroll costs.
Critics argue that the NI hike risks undermining economic recovery by discouraging job creation and hitting household budgets through higher prices and slower wage growth.
The full impact of the changes will likely unfold gradually, adding to uncertainty for businesses and workers alike.
