SW businesses raise NI fears

Businesses in the South West have issued a stark warning about the incoming rise in National Insurance (NI) contributions with industry leaders warning it could “cripple” companies across the region.

The increase, announced in Chancellor Rachel Reeves’ 2024 Autumn Budget, will see the NI rate for employers rise from 13.8% to 15% in April 2025.

Further changes will also see employers start paying National Insurance on more of an employee’s earnings, with the threshold reducing from £9,100 to £5,000.

Now, a survey by the Devon Chamber of Commerce has found that some 77% of businesses are “very concerned” about the impact the NI rise is likely to have on their operations.

The majority of those who completed the survey (87%) believe these additional costs will have a negative impact on profitability, with 41% of businesses saying they will halt recruitment altogether.

The survey also found that:

• 72% say these rises will have a negative impact on cash flow
• 64% of businesses are likely to be unable to make pay rises
• 56% may need to reduce staffing levels
• 44% will reduce investment in their business
• 41% will stop recruitment altogether

Those sentiments have been echoed by Chamber members across the UK, with members of the Dorset Chamber reporting similar concerns.

In Dorset, 91% are concerned about the impact of NI on their business, with 71% saying the additional costs will have a negative impact on profitability.

Back in October the British Chambers of Commerce (BCC) reported how raising NI contributions would place an additional strain on businesses.

In a statement at the time, Alex Veitch, Director of Policy at the BCC, said: “The Chancellor is facing a tight fiscal position and will have to make difficult decisions in the forthcoming Budget. But raising Employer National Insurance Contributions (Employer NICs) would place an additional strain on businesses.

“Firms are run by working people, nearly all UK companies are small, with many family-owned, and they are the anchors in our local economies.

“Raising employer NICs, in an already stretched economy, will simply hobble growth and lead to businesses having less money to invest in their staff.”

This week, the Bank of England announced that it would be cutting interest rates from 4.75% to 4.5%, the lowest base rate since June 2023.

David Bharier, Head of Research at the BCC, said: “Given the raft of cost pressures and global economic uncertainties businesses are facing, today’s interest rate cut provides a measure of relief for SMEs.

“Since the Autumn Budget our research has shown a significant fall in business confidence, with fewer firms expecting to increase turnover over the next twelve months. 

“UK businesses are facing a range of challenges. Domestically, firms face increased tax bills and employment costs within weeks, with national insurance and minimum wage hikes. The government needs to pull all levers possible to ease the cost pressures on firms and unlock investment opportunities.”

While this interest rate cut offers a glimmer of hope, policymakers must act decisively to restore confidence and foster growth.

And with businesses already struggling to manage inflation, wage pressures, and tax burdens, the proposed NI rise threatens to push many over the edge.

The Devon Chamber will continue to lobby on behalf of its members, and CEO Stuart Elford has called for immediate intervention to address the NI hike and the catastrophic effect it could have on our region’s businesses and, indeed, businesses across the UK.

Stuart said: “The National Insurance hike looks set to come into effect in April and, at the moment, it looks like the Government is not going to change their mind.

“Also, with the NI threshold starting lower, at £5,000, though it may not seem a huge percentage rise, it is likely to be very costly for business – with many quoting a rough guide of £1k per employee. 

“The terrifying statistics from our survey form a strong message from businesses how difficult this is going to be, and shows that people are waking up to the fact these changes are coming.

“It’s clear that some businesses have not considered the impact, while others are already taking steps to prepare for the changes.

“A main intention of this NI rise is to fund the NHS, but I fear it is going to cripple the economy rather than grow it. One of the sectors most likely to be affected is the third sector, which includes charities, social enterprises and healthcare. Rather than help the NHS, it is instead going to have a contradictory effect on those who work in the third sector to support the NHS, due to a lack of staff and other factors.”

Stuart adds: “What we need now are for our local MPs to step up and tell the Chancellor that these issues need addressing, before we’re pushed into a recession.”