NI Increase: A Cost Too High for UK Businesses?

The announcement of an increase in employer National Insurance Contributions (NICs) from 13.8% to 15%, effective from April 2025, was never going to go unnoticed. But what we are witnessing now is a stark reminder that good intentions don’t always equal good outcomes.

Coupled with a reduction in the threshold at which employers start paying NICs, from £9,100 to £5,000, the policy is already being felt across the economy. Early indicators are worrying with more than 276,000 jobs lost since April, 109,000 of them in May alone.

These figures are not projections, they’re real losses. Behind each job is a person, a household, and a business struggling to keep moving forward.

Who’s Being Hit the Hardest?

Sectors with slim margins and high labour dependency are bearing the brunt: hospitality, social care, retail, and manufacturing. These are industries that don’t have the luxury of absorbing sudden spikes in cost.

A recent industry survey revealed:

• 33% of larger businesses are planning staff reductions.
• 40% have frozen hiring or delayed growth plans.
• 46% are raising prices to offset additional employment costs, adding further inflationary pressure.

Take hospitality as a case in point. Fuller’s, a well-known pub chain, estimates an £8 million rise in operating costs due to the NIC increase. The outcome is a 15p rise in the price of a pint. Multiply that across the supply chain, and it becomes easy to see how inflation is being pushed along.

A Welcome, But Limited, Concession

To support small employers, the Government has raised the Employment Allowance from £5,000 to £10,500 and scrapped the £100,000 eligibility cap. This move means a small business employing four people on minimum wage won’t pay any NICs at all.

While this will offer relief to the smallest firms, it will do little for the mid-sized businesses that form the engine of regional economies, particularly in the Midlands and Wales.

The bigger concern is sustainability. Many of these businesses are still recovering from pandemic-era disruption. They are now being asked to absorb new costs at a time when margins remain squeezed, demand is fragile, and investment confidence is low.

What About the Broader Economy?

The Office for Budget Responsibility estimates that the NIC rise will result in a 0.1% drop in potential economic output. While that may sound modest, it adds up over time, and has a disproportionate impact when the economy is already sluggish.

More importantly, it sends a signal. At a time when we should be encouraging growth, innovation, and job creation, we’re penalising employers for doing just that.

A Growing Divide in the UK

There’s also a regional dimension to this policy. Due to the way government funding is distributed across the UK, some areas are set to be disproportionately affected.

This is down to the Barnett formula – a mechanism used to allocate public spending to Scotland, Wales, and Northern Ireland based on changes in spending levels in England. In practice, when new funding is raised or saved (like through increased NICs), the devolved nations receive a proportionate share.

However, this formula doesn’t always reflect regional need or economic impact, and in this case, it’s creating real disparities:

• Scotland faces a £700 million annual shortfall.
• Northern Ireland, £200 million.
• Wales, £72 million.

These gaps raise legitimate questions about fairness, and whether the UK’s fiscal framework remains fit for purpose.

A Trust Deficit Emerging

From a people perspective, we’re seeing a widening trust gap between employers and employees. Workers report stagnant wages, increased workloads, and withheld bonuses, with some businesses blaming the NIC increase, even when internal figures suggest otherwise.

This kind of narrative risks long-term damage to morale, retention, and workplace culture. And while there’s no quick fix, honesty and transparency in internal communications will go a long way.

Our View: Strategic Action Is Needed

At WR Partners, we don’t just interpret the numbers, we understand the human impact behind them. If your business is affected, here’s what we recommend:

• Re-evaluate workforce strategy: Don’t make hasty decisions. Look at where productivity gains can be made and where flexible working models could create cost efficiencies.
• Review remuneration structures: Explore tax-efficient benefits or salary sacrifice arrangements.
• Plan cash flow meticulously: Rising employment costs can sneak up on you, don’t let them catch you off guard.
• Engage in scenario modelling: Stress-test what your business can absorb. And what it can’t.

Most importantly, don’t delay planning. Businesses that adapt early will reduce the impact of these changes.

Conclusion: Is This Policy Fit for Purpose?

While we recognise the need for fiscal responsibility, this rise in National Insurance Contributions has landed heavily, arguably, too heavily, on the very businesses we need to drive recovery.

A broader consultation may yet come, and if it does, we would urge all stakeholders to make their voices heard. The case for a more balanced approach, one that safeguards public finances without stifling growth, is stronger than ever.

At WR Partners, our role is clear: to support you in challenging times and protect your future with smart, practical advice. If you’re concerned about the impact of this change, please get in touch.