The hospitality industry will incur an extra £1bn of costs for 774,000 of its workers who will be newly eligible for employer national insurance contributions from April, endangering jobs and businesses, a leading industry body has claimed.
UKHospitality, which represents thousands of restaurants, hotels, pubs, cafes and nightclubs, is calling on the government to delay or alter changes to the tax announced in Rachel Reeves’s October’s budget in order to protect jobs.
It said hospitality businesses currently employed 1.2 million staff who were not eligible for employer national insurance contributions (NICs), but that number would be cut to 450,000 people as more were dragged into a lower threshold from April. It said the £1bn is on top of £2.4bn of other costs due to hit in April, including rising wage bills.
Kate Nicholls, the chief executive of UKHospitality, said the government was punishing an industry that she said had been the biggest driver of growth in November.
“The change to employer NICs is one of the most regressive tax changes ever,” she said, claiming the decision would have “a devastating impact” on businesses, communities and workers, particularly those working part-time or on the lowest hourly pay.
“The scale of this change is unprecedented, bringing three-quarters of a million people into this employer tax for the first time, and the extent of the impact will be enormous. This tax is already forcing businesses to abandon investment, change recruitment plans, reduce headcounts and increase prices to cope with these cost increases.”
Nicholls proposed the government consider easing the impact of the tax on the lowest-paid roles by introducing a new low rate of national insurance of 5%, rather than 15%, for earnings between £5,000 and £9,100, or a lower rate for lower-earning taxpayers who worked part-time.
Business leaders have already warned that measures in Labour’s budget to increase employer NICs by £25bn from April and a 6.7% rise in the national minimum wage will force companies to cut jobs, pause hiring or pass on the higher employment costs in the form of higher prices.
Retailers including Tesco, Marks & Spencer and Next wrote to Reeves in November to warn that a £7bn increase in annual costs after the budget would lead to job cuts and higher prices.
A Treasury spokesperson said more than half of employers would see either a cut or no change in their national insurance bills, and government plans would “unlock investment, and support business so we can make all parts of the country better off”.
The spokesperson added: “Without our action, business rates relief for retail, hospitality and leisure would have ended completely in April this year. Instead, we are protecting one in three businesses from paying business rates, extending 40% relief for 250,000 properties in retail, hospitality and leisure and introducing a new permanently lower business rate in 2026.”
Despite announcing strong Christmas trading, several large retailers laid out plans to step up investment in technology such as self-service tills and warehouse robotics to help offset higher labour costs.
Hospitality businesses such as McDonald’s and KFC are also using more self-service tills in their outlets, while dine-in restaurants are using app-based ordering systems to reduce the need for staff. However, smaller businesses with fewer resources to invest are likely to be hit hardest by the changes.
