Wednesday’s number of the day in the UK corporate scene was £60m. It is what Marks & Spencer expects to pay extra in employers’ national insurance next year, with the “same again”, said Stuart Machin, the chief executive, from wage increases that were already in train before last week’s budget. And £60m was also JD Wetherspoons’ estimate of its increases in taxes and business costs for 2025, including a jump of 67% in national insurance contributions.
If those figures seem chunky, even for large employers, wait until even bigger companies report. It would not be surprising if Sainsbury’s, with 148,000 employees, on Thursday says its employers’ national insurance bill will rise by £120m-ish next year – or by slightly more than 50% from last year’s level of £222m. Wage increases might add a further £80m.
At a business making underlying pre-tax annual profits of £700m-ish (and just £277m on a statutory basis last year), a sudden increase in fixed costs of £200m is plainly too substantial to be lost in the wash of regular cost-saving cycles. These are all profit-seeking companies. Something has to give.
For his part, Machin blurred things by saying M&S didn’t “plan” to increase prices but added that he “can’t rule [it] out”. As it happens, M&S is better placed than most to absorb financial pressure – the business is flying, with pre-tax profits up 17% to £408m in the half year. Across the retail landscape, however, it would be a miracle if some of the extra cost isn’t passed to consumers. It could hardly be otherwise when national insurance is a blunt tax on labour, rather than a tax on profits.
Here’s the wider point, however: the likes of M&S, Sainsbury’s and JD Wetherspoon will cope. They are infinitely better placed to manage the shock of a sudden cost increase than smaller rivals.
On top of the “double whammy”, as Machin put it, of a rise in employers’ national increase rate and a lowering of the threshold to £5,000, smaller companies also have to contend with a reduction in small business relief. And, to the extent that small- and mid-sized players are more likely to pay minimum wage rates, they will be more affected by the rise in the national living wage.
One can predict at least three effects. First, there will be faster closures of small shops making marginal returns. That sounds like even worse news for struggling high streets. Second, consolidation will accelerate as the laggards seek sanctuary. Frasers and Next are the current sweeper-uppers in the non-food arena and may find they have more brands to swoop on.
Third, there will now be an almighty lobbying effort over reform of business rates, the bit of the tax jigsaw where pubs and stores might reasonably have expected a sweetener if they are being loaded with extra costs elsewhere. Rachel Reeves did signal lower rates for retail, hospitality and leisure properties – but only from 2026-27 and she was vague about details. If the aim is to target the likes of Amazon and Shein, the fear is that the Treasury will miss the mark, or arrive with reform too late.
Add it all up and one can understand why the stock market is taking a sanguine view of the NICs shock for the likes of M&S (shares up by 4% on Wednesday) and Sainsbury’s. But smaller operators – many away from the stock market – have every reason to grumble. Amazon got off lightly from the budget; they didn’t. Is that really what Reeves intended?
