In Brief:
From April 2025, employer National Insurance contributions jumped from 13.8% to 15%, while the threshold dropped from £9,100 to £5,000 per employee. For businesses employing people on £20,000, costs rose 50% overnight. The result has been immediate: 27% of companies postponed or cancelled recruitment, 16% made redundancies, and 19% froze pay reviews. Oxford Economics predicts 55,000 job losses, and major retailers including M&S, Boots and John Lewis have announced closures. The government claims this £25 billion funds the NHS without breaking manifesto pledges to not tax “working people” directly. But workers bear the cost anyway through lost jobs, frozen wages and cancelled hiring.
The logic is backwards. When you make employment more expensive, businesses employ fewer people. The sectors hit hardest are those with the lowest margins: hospitality, retail, care homes and GP surgeries. The Employment Allowance increase helps the smallest businesses but does nothing for medium-sized employers stuck between protecting jobs and staying solvent. Economic research shows workers ultimately bear 60-76% of the cost through lower wages, but the immediate impact is redundancies and hiring freezes. After 40 years of paying tax, it still makes no sense to tax the act of employing people when the stated goal is economic growth and more jobs. When you tax something, you get less of it. That’s not ideology. That’s arithmetic.
I’ve been paying tax for over 40 years and I still can’t work out the logic in making it more expensive for businesses to employ people. Turns out, I’m not the only one baffled by this approach. From 6 April 2025, employer National Insurance contributions jumped from 13.8% to 15%, while the threshold at which employers start paying dropped from £9,100 to £5,000 per employee. That’s not just a tax rise. That’s making employment itself more expensive, and anyone running a business can tell you what happens next: you employ fewer people.
The response from businesses has been swift and predictable. Research shows 27% of companies have postponed or cancelled recruitment, 16% have made redundancies, and 19% have frozen salary reviews directly because of these changes. In London, where costs were already eye-watering, 60% of firms report the increase is affecting hiring decisions, with 24% having already made redundancies. Major retailers including Marks & Spencer, Boots, John Lewis and H&M have announced store closures or downsizing. Yet the government insists this was necessary to fund public services without breaking manifesto pledges not to raise taxes on “working people.”
The maths doesn’t lie, but neither does the human impact. When you tax employment, you get less of it. That’s not ideology. That’s arithmetic.
The Real Cost of Employing Someone Just Jumped
For someone earning £20,000, employer costs jumped 50%, from £1,504 to £2,250. For someone on £100,000, the increase was just 14%. This isn’t asking those with the “broadest shoulders” to contribute more, as Rachel Reeves claimed. This is hammering businesses that employ people on lower wages. The sectors getting hit hardest are exactly the ones you’d expect: hospitality, retail, care homes, and GP surgeries. These are labour-intensive businesses operating on margins that were already razor-thin.
Oxford Economics modelled the impact and predicted 55,000 job losses, a 0.2 percentage point increase in unemployment, and pay growth cut by 0.2 percentage points. But they reckon the actual damage could be worse because corporate profitability was already at a 23-year low before this hit. Between 2021 and 2025, the total cost of salary and National Insurance for a full-time worker on the living wage increased by 44%. That’s not sustainable for businesses trying to compete while keeping prices reasonable for customers.
Moore UK’s survey found 44% of small and medium-sized businesses say the rise will negatively affect them, with 37% now citing tax as one of their biggest challenges, up from 21% a year ago. These aren’t massive corporations with deep pockets and creative accountants. These are the bakeries, independent shops, local care providers, and small manufacturers that employ most people in this country.
The Employment Allowance Myth
The government increased the Employment Allowance from £5,000 to £10,500 and removed the cap, claiming 865,000 employers won’t pay any National Insurance at all. This is their “we’re protecting small businesses” defence, and it sounds generous until you realise it only helps the smallest businesses, those with one or two employees on modest wages. Once you’re past that threshold, the allowance does nothing for you. If 44% of SMEs still say the increase negatively affects them despite this allowance, it’s clearly not enough.
Medium-sized employers, the ones with 20, 50, or 100 staff, get hammered. They’re too big for the Employment Allowance to make a meaningful dent, but not big enough to absorb the costs the way multinational corporations can. They’re stuck between protecting jobs and staying solvent. Something has to give, and it’s usually hiring plans, pay rises, or existing jobs.
Workers Pay Either Way
The government technically kept its manifesto promise not to raise employee National Insurance or income tax. Clever, that. Tax the employer instead, and you can claim you haven’t broken your word to “working people.” Except workers bear the cost anyway, just indirectly. Economic research from Oxford University’s Centre for Business Taxation shows that workers ultimately bear 60-76% of the cost through lower wages. The Office for Budget Responsibility used the same figures in their forecasts.
But there’s a gap between economic theory and lived reality. Theory says wages adjust downwards over time to compensate. Reality says businesses freeze pay, cancel planned rises, postpone recruitment, or make redundancies. The person who doesn’t get hired because the business can’t afford another employee doesn’t care about the theoretical long-term wage adjustment. They care about not having a job.
The irony is brutal. GP practices, which aren’t technically NHS employees, have to pay the full increase. That potentially adds £20,000 annually to an average surgery. These are the same GP practices the government claims to be supporting with increased health spending. With one hand, they promise more NHS funding. With the other, they make it more expensive to run the primary care services people actually use. Some surgeries will close. Others will make staff redundant. Patients will wait longer. This is what happens when tax policy doesn’t talk to health policy.
The Public Services Justification
The government’s position is straightforward: this £25 billion net tax rise funds the NHS and public services. Rachel Reeves stated it “raises revenue for the NHS and increases funding for contributory benefits like the State Pension.” An extra £22.6 billion goes to health spending, which sounds substantial until you realise the NHS costs over £180 billion a year and has a backlog that would take decades to clear even without additional pressures.
Nobody credible argues public services don’t need funding. The NHS is creaking. Social care is in crisis. Schools are falling apart. But there are multiple ways to raise revenue, and choosing the method that specifically disincentivises employment seems perverse if you want economic growth. Some economists argue that taxing excess profits (economic rents) rather than employment would target highly profitable businesses without punishing companies for hiring people. Others point out that National Insurance is a worse way to raise revenue than income tax or VAT because it distorts the labour market by penalising employment.
The Resolution Foundation has suggested switching from National Insurance to income tax could be more efficient. It would raise the same revenue without creating a specific disincentive to employ people. But that would mean admitting you’re raising income tax, and the manifesto pledge becomes awkward. So instead, we get a tax rise that kills jobs while claiming to protect workers.
What Businesses Are Actually Doing
The data shows what businesses do when employment gets more expensive. They employ fewer people. British Chambers of Commerce research found the increase is creating a “powder keg of costs” that businesses can’t absorb indefinitely. Options are limited: raise prices and lose customers, cut costs elsewhere, reduce headcount, or accept lower profits. Most businesses are doing a bit of all four.
Large retailers are closing stores or downsizing. Small businesses are postponing expansion plans. Care homes are struggling to maintain staff levels while dealing with increased costs. Hospitality businesses, already operating on margins of 5-10%, are cutting shifts or closing on quieter days. The arts, entertainment and recreation sectors, which rely heavily on part-time and lower-paid staff, are particularly vulnerable.
Some businesses are looking at salary sacrifice schemes for pensions, which reduce National Insurance liability because contributions come out of gross salary before National Insurance is calculated. That helps employees and employers, but it’s a workaround for bad policy rather than good policy itself. Others are simply holding positions vacant, asking existing staff to do more, or using contractors where they used to employ people directly.
The Fundamental Problem
Making employment more expensive when you want economic growth is incoherent. If the objective is a growing economy with more people in work, taxing the act of employing people achieves the opposite. This isn’t a left or right issue. It’s basic cause and effect. When you tax something, you get less of it. Tax cigarettes, people smoke less. Tax employment, businesses employ fewer people.
The government had choices. They could have raised income tax directly, which would have been honest but politically costly. They could have introduced a wealth tax on assets, which would have been controversial but targeted accumulated wealth rather than economic activity. They could have closed tax loopholes that allow profitable companies to pay minimal corporation tax. Instead, they chose the option that specifically targets businesses for the crime of employing people on modest wages.
The 44% increase in employment costs for minimum wage workers between 2021 and 2025 has consequences. Some businesses will close. Others will limp along, not hiring, not investing, not growing. The jobs that disappear aren’t just statistics. They’re people who could have worked in retail, hospitality, care, or small manufacturers. They’re the pay rises that don’t happen for existing staff because the budget has been eaten by National Insurance increases. They’re the expansion plans that get shelved because the numbers no longer add up.
Where This Leaves Us
Nobody has found a way to fund public services without raising taxes somewhere. That’s accepted. But choosing to tax employment when corporate profitability is at a 23-year low, when businesses are still recovering from energy cost spikes, and when consumer demand is weak, is rotten timing. The employment impact is measurable, immediate, and falls hardest on exactly the workers the government claims to protect.
Economic theory says the cost gets passed to workers through lower wages. Empirical evidence shows businesses cut jobs, freeze pay, and postpone hiring. Both are true, and both hurt workers. The semantic game of not technically raising employee National Insurance while making it more expensive to employ them achieves nothing except creating distance between politicians and the consequences of their decisions.
After 40 years of paying tax, I’m still waiting for someone to explain the logic of making employment more expensive when we need more jobs, not fewer. The employment numbers tell the story politicians won’t. When you make it costly to hire people, businesses hire fewer people. It’s not complicated. It’s just maths.
The Questions Everyone’s Actually Asking
How Much More Does It Cost to Employ Someone After the April 2025 National Insurance Changes?
For someone earning £20,000, employer costs jumped 50%, from £1,504 to £2,250 in National Insurance contributions. For higher earners on £100,000, the increase was just 14%. The lower the wage, the bigger the percentage hit to the employer.
Did Labour Break Their Manifesto Promise Not to Raise National Insurance?
Technically no, because they only raised employer National Insurance, not employee contributions. However, economic research shows workers ultimately bear 60–76% of the cost through lower wages, frozen pay rises, or lost job opportunities. It’s a semantic distinction that doesn’t change the reality for workers.
Will the Employment Allowance Increase Help Small Businesses Cope With Higher National Insurance?
The Employment Allowance rose from £5,000 to £10,500, which helps the smallest businesses with one or two employees. However, 44% of small and medium businesses still report the National Insurance rise negatively affects them. Once you’re past the threshold, the allowance provides no benefit, leaving medium-sized employers struggling.
Why Do GP Practices Have to Pay the Higher National Insurance When They Provide NHS Services?
GP practices are independent contractors, not direct NHS employees, so they don’t qualify for NHS exemptions from the National Insurance increase. The BMA warned this could add around £20,000 annually to average surgeries, potentially forcing practice closures or staff redundancies at a time when the government claims to be investing in the NHS.
Are Businesses Actually Cutting Jobs Because of the National Insurance Increase?
Yes, the data shows measurable impact. Research found 27% of companies postponed or cancelled recruitment, 16% made redundancies, and 19% froze salary reviews directly because of the changes. In London, 24% of firms have already made redundancies, and major retailers including M&S, Boots and John Lewis have announced closures or downsizing.
Could the Government Have Raised the Same Revenue Without Making Employment More Expensive?
Multiple alternatives exist. They could have raised income tax directly, introduced a wealth tax on assets, closed corporation tax loopholes, or taxed excess profits rather than employment. Each would have been politically controversial but wouldn’t specifically discourage businesses from hiring people. The National Insurance route avoided admitting to an income tax rise whilst achieving similar revenue.
How Long Will It Take for Workers to Feel the Full Impact of Employer National Insurance Increases?
The impact is both immediate and long-term. Immediate effects include job losses, frozen recruitment and cancelled pay rises happening now. Long-term effects involve wage suppression as economic theory predicts workers bear 60–76% of costs over time through lower wage growth. Both hurt workers, just through different mechanisms.
Sources
Official Government and Primary Sources
Rates and thresholds for employers 2025 to 2026
gov.uk
Office for Budget Responsibility – National Insurance Contributions (NICs)
obr.uk
Independent Fact-Checking
Has the government kept its pledge on National Insurance?
fullfact.org
Did the Budget break Labour’s National Insurance promise?
fullfact.org
Regulated Broadcasters
GPs and care homes fear impact of National Insurance rise
bbc.co.uk
Warning retail job cuts ‘inevitable’ after NI tax rise in Budget
bbc.co.uk
Sainsbury’s and M&S warn Budget may push up prices
bbc.co.uk
John Lewis losses nearly triple to £88m
bbc.co.uk
Specialist Publications and Academic Sources
What the rise in NICs means for the UK labour market
oxfordeconomics.com
Will Workers Pay The Employer National Insurance Contributions Rise
oxfordtax.sbs.ox.ac.uk
Professional and Industry Bodies
National Insurance Creating ‘Powder Keg of Costs’
britishchambers.org.uk
NI hike fuelling crisis in general practice
bma.org.uk
Firms scale back recruitment plans in wake of National Insurance hike
workplaceinsight.net