National Insurance rise could hit economy, business groups warn

Plans to raise National Insurance to pay for social care costs in England have come under fire from business groups.

The Institute of Directors told the BBC it was "extraordinary" timing that firms should now face extra costs to employ people.

The CBI said the move "amounts to a tax on jobs which could derail the UK's economic recovery".

National Insurance is paid by both businesses and staff.

Speaking to the BBC's Today programme, the IoD's chief economist, Kitty Ussher, said: "It just seems such an extraordinary time given everything that British business has gone through in the pandemic, to be to be facing an extra cost of employing people."

The IoD is already concerned about rising labour costs as a shortage of workers in some areas means firms are having to pay higher wages to attract them.

Ms Ussher said 73% of the IoD's members were concerned about having to pay higher wages.

She denied the IoD's member firms were against any tax rises. "Nobody likes taxes, but the government's already said it's going to raise corporation tax, which is a tax that companies pay out of profit so if you're doing well, it gets paid.

"The problem with National Insurance is that it's a kind of flat cost, so it's it's paid regardless of whether firms are having a good year, or a bad year."

Ms Ussher said National Insurance should not be used in place of general taxation because it was designed for a specific reason.

"[National Insurance] was established to protect people financially from the risks of being unable to work, based on a contributory system, and it is on that basis that employers also make contributions.

"There is no logic to employer National Insurance Contributions being used to fund anything else."

He is expected to breach election promises and raise National Insurance by about 1.25%, a move that would see someone on a £30,000 salary pay an extra £255 per year.

The plan has prompted a backlash from some Tory MPs.

Labour has also criticised the move, saying a rise in National Insurance would unfairly target young people and lower earners.

Other business organisations have also criticised the plan.

The CBI said it accepted social care reform was overdue, but urged the government to explore other funding routes.

"Businesses have endured a torrid 18 months and are now fighting to overcome crippling labour shortages which threaten to further undermine recovery prospects," it said.

"[This] amounts to a tax on jobs which could derail the UK's economic recovery."

The Federation of Small Businesses has also said the move would be a severe blow to small businesses and sole traders.

Reports suggested the overhaul will place a limit - or "cap" - on the lifetime contributions made by individuals, with the taxpayer funding costs on top of this.

This would be a version of a plan suggested by Sir Andrew Dilnot, who advocated a £35,000 lifetime cap in 2011.

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