Rachel Reeves’s Budget ‘will cost Britain 100,000 jobs’

Employers will pass along increased cost of NICs to workers with cuts, warns Deutsche Bank

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Rachel Reeves’s National insurance (NI) tax raid will destroy 100,000 jobs as hard-pressed companies are forced to lay off staff and freeze hiring, analysis has found.
Deutsche Bank warned the jobs market was already showing signs of “cracking” and warned that the Chancellor’s changes to NI would put further strain on employers.
Sanjay Raja, an economist at the bank, said he expected the hit will be twice as much as the 50,000 jobs predicted by the Office for Budget Responsibility in its forecasts published alongside the Budget.
Mr Raja said: “Given that the increase in NI contributions is ultimately a payroll tax, firms’ payroll decisions will come under significant scrutiny going forward.
“This won’t happen all at once. More likely, we will see declines in hiring and employment growth, with some firms adjusting more immediately to the increase in tax.
“How many jobs, including future jobs, would be lost based on the above? Just a little over 100,000 jobs.”
The Chancellor said last month that from April the rate of employer NI contributions will rise from 13.8pc to 15pc and the wage threshold at which it kicks in will fall from £9,100 per year to £5,000. The Treasury expects the move will raise £25bn.
Ms Reeves claimed the changes do not break Labour’s manifesto promise to not increase NI contributions because that only referred to the share of the tax paid directly by workers.
Deutsche Bank said those still in work will also see their pay affected, despite Ms Reeves’s pledge to protect “working people” in the Budget.
Pay rises are likely to be £5.6bn lower than previous forecasts, Deutsche Bank said, as employers seek to reduce the burden from the NI raid.
The bank now expects average pay growth of 3.75pc next year, not the 4.25pc it anticipated before the Budget.
Meanwhile, prices will be higher in shops – as companies, already struggling with low profits, are forced to pass on some of the costs of the £25bn tax to their customers.
Around £6.5bn will be paid by customers in the form of higher prices, adding to inflation which is already expected to rise back above the Bank of England’s 2pc target in the coming months.
According to Deutsche Bank, employers will ultimately suffer around £19bn of annual costs from the tax – lower than the £25bn estimated by the Treasury – as some of that cost falls on public sector payrolls, not the private sector.
The bank also suggested companies will also cut around £1.4bn in capital spending– reducing business investment across the economy by 0.5pc, undermining another of Ms Reeves’s goals which is to boost Britain’s investment case and improve long-term economic growth.
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