LONDON (Reuters) – British finance minister Rachel Reeves said on Wednesday she would raise employers’ social security contributions to 15% from April, a major revenue raiser in a budget the government hopes will kick-start a flagging economy.
Britain’s Labour government has long said those with the “broadest shoulders” should do more to help fix the public finances, which Reeves says were left with a 22 billion pound ($29 billion) black hole by the former Conservative administration.
But some companies and opposition politicians cried foul, saying the increase could hurt economic growth by raising employers’ payroll costs.
The rise in the National Insurance Contributions (NICs) that employers pay by 1.2 percentage points, combined with a decision to lower the threshold for when firms start paying, to 5,000 pounds from 9,100 pounds per year, are set to be the budget’s single largest revenue raiser.
“We are asking business to contribute more and I know that there will be impacts of this measure felt beyond businesses … But in the circumstances that I have inherited, it is the right choice to make,” Reeves told parliament.
To smooth the move for Britain’s smallest businesses, she said the government would increase the employment allowance from 5,000 pounds to 10,500 pounds, meaning 865,000 employers would not pay any National Insurance at all next year.
The move is expected to fall entirely on the private sector, with public employers such as government departments and the National Health Service being reimbursed to avoid having to make cuts.
Economists have said businesses would likely pass on some of the higher costs to workers.
“The specific changes to employer NICs increase the costs of employment for firms which is mainly assumed to be passed on to employees through lower real wages, and which also reduces employment,” Britain’s independent Office for Budget Responsibility said shortly after Reeves’ budget, noting the rise increased employer payroll costs by just under 2 percent.
The increase is expected to raise “25 billion pounds per year by the end of the forecast period”, Reeves said, covering more than half of the 40 billion pounds that she is targeting to cover day-to-day spending.
In the last tax year, employers paid 60% of the 179 billion pounds raised by NICs, which are the second-largest revenue-raiser after income tax, with remainder paid by employees.
The opposition Conservative Party said the move broke an election promise Labour made before its July election victory that it would not raise taxes on “working people”.
($1 = 0.7712 pounds)
(Reporting by David Milliken, Sachin Ravikumar and Elizabeth Piper; Editing by Christina Fincher and Hugh Lawson)
