National Insurance warning: Businesses could be ‘forced to pay people lower wages’

Prime Minister Boris Johnson saw his tax rise for health and social care reforms secure a comfortable victory in the House of Commons yesterday. MPs voted 319 to 248 for a 1.25 percent rise in National Insurance for workers and employers. Five Conservatives voted against the changes while 37 Tory MPs abstained, but the Government’s 80 seat majority was enough for the bill to pass.

The tax rise has sparked controversy given Prime Minister Johnson pledged not to raise National Insurance in his 2019 manifesto.

Working people and employers will be made to pay the extra bill, dubbed a ‘Health and Social Care levy’, from April next year.

But economist at the free-market Institute of Economic Affairs, Julian Jessop, tells Express.co.uk that hitting employers with a hike could lead to lower wages.

He said: “It certainly adds to the downside risks, the economy is already facing a few headwinds at the moment.

“Supply problems, lingering concerns about Covid and a renewed lockdown in October.

“The idea that taxes are going up generally, but specifically taxes on employment, is another challenge the economy could do without.

“I’m still optimistic the labour market can recover strongly, there’s currently a shortage of workers so employers probably will be willing to pick up the bill for higher National Insurance contributions.

“But they will inevitably pass that bill on in one way or another. Maybe in the form of lower wages, workers might not get as much in their pay packets as they might have otherwise done. Or it could be higher prices.

“There isn’t a free lunch here. But I imagine Boris Johnson will get away with it because the labour market is currently so strong.”

Three weeks ago, job vacancies hit a record high as the UK’s labour market “rebounded robustly.”

Vacancies hit 953,000 in the three months to July, the Office for National Statistics (ONS) said.

The unemployment rate fell to 4.7 percent in the three months to June, while the annual growth in average pay was 7.4 percent.

READ MORE: Capital gains tax: Landlord and investors on ‘high alert’ for hike

ONS deputy statistician Jonathan Athow told the BBC: “This time last year we had millions of people on furlough many getting 80 percent of their wages, other people having their hours cut, and that pushed wages down.

“So when we look at wages this year, when people have come back from furlough, it’s really been boosted by the fact that last year wages were quite low. Some of this group was just wages returning to the level before the pandemic.”

In the aftermath of Mr Johnson’s tax hike, businesses have warned that jobs recovery could be impacted.

The British Chambers of Commerce (BCC) said it would “be a drag anchor on jobs growth” as firms emerge from the pandemic and furlough winds down.

Manufacturing trade group Make UK’s boss also described its introduction as “ill-timed as well as illogical”.

Lord Karan Bilimoria, president of the CBI, said: “After all that business has gone through during the pandemic and the fantastic government support that followed, now is not the time for tax increases.

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“It’s time to stimulate investment and growth in the economy.”

Meanwhile, Paul Johnson, director of the Institute for Fiscal Studies, told the BBC’s World at One that income tax would have been a better tax to hike.

He said: “We always knew we were going to need tax rises during this decade to pay for health and social care.

“This is not the right tax rise – income tax would be better, some other ones would have been better.”

He added: “If you had to do something with income tax, National Insurance or VAT, it would have been better if it had been something which impacted all generations similarly, it would be better if it affected people with rental income and so on.”

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