New analysis has revealed working families will be £3,536 worse off over the course of this Parliament because of the government's National Insurance Jobs Tax which comes into effect this Sunday [6 April].
The new analysis looks at figures from the independent Office for Budget Responsibility (OBR) which shows the majority of the employer National Insurance Tax rise will be passed on to workers in lower real wages.
The £25 billion hike will cut salaries, punish businesses for hiring part time workers, and increase costs onto businesses. Business leaders have warned they will be cutting back on investment and recruitment as a direct result of this policy. Almost two-thirds of City bosses expect lower profits, higher prices, and job cuts, with more than a third warning of wage reductions.
James and other MPs have previously called for exemptions for essential frontline services, like GP surgeries, children’s hospices and nurseries. But Labour MPs repeatedly voted against these exemptions,
This increase comes on top of household bills rising by over £1,000 a year.
James said:
"Before the election, the Chancellor promised not to increase national insurance but that promise has been broken. The choices the government made will mean lower wages, higher prices, and fewer jobs. Local firms have told me of the damage this will do and it is not too late for the government to think again before this tax hike comes in on Sunday."
ENDS
OBR sets out firms would pass on the costs of the Jobs Tax to workers. The OBR sets out this would be 60 per cent on 'lower wages' and 'higher prices' in 2025-26 - we have assumed half (30 per cent) would fall on wages - and thereafter 76 per cent on wages in future years. Page 74 of the OBR EFO March 2025 sets out: ‘In 2025-26, the year in which the tax change is introduced, we assumed firms pass on 60 per cent of the higher costs to workers and consumers, via lower nominal wage increases and higher prices, with the remaining 40 per cent absorbed by the employer in lower post-tax profits. Thereafter, we assumed, based on demand and supply elasticities for labour, that 76 per cent of the total cost is passed through to employees via lower real wages, leaving 24 per cent of the cost to affect profits, and leading to a 50,000 downgrade to employment in average-hours-equivalent terms by 2029-30. Of the long-run passthrough of this cost to employees’ real wages, we assumed four-fifths comes through lower nominal wages and one-fifth via higher prices.’ (OBR, Economic and Fiscal Outlook, p.74, 6 March 2025, link).
OBR warned of a ‘substantial reduction in wages’ as a result of the Jobs Tax. ‘Most surveys do point to a substantial reduction in nominal wages relative to what would otherwise have occurred, including, in particular, the Bank of England’s Agents’ pay survey and Brightmine’s Pay Trends report’ (OBR, Economic and Fiscal Outlook, p.75, 6 March 2025, link).
- OBR have set out that the impact of the Jobs Tax could be larger than their model. ‘There is a risk that responses via prices and employment are larger than is currently assumed in our forecast.’ (OBR, Economic and Fiscal Outlook, p.75, 6 March 2025, link).
