Recent changes to National Insurance are expected to affect employment in the UK.
- Employer contributions have increased, potentially reducing job creation and opportunities.
- The National Institute of Economic and Social Research (NIESR) deems this a ‘tax on jobs.’
- Lower-income households may face significant economic strain as disposable income decreases.
- Bond market volatility and inflation concerns contribute to an uncertain economic outlook.
The recent budget introduced by the UK government has sparked concern among economic experts regarding its impact on employment. The decision to increase employer national insurance contributions (NICs) by 1.2 percentage points to 15% and reduce the liability threshold to £5,000 is viewed by the National Institute of Economic and Social Research (NIESR) as a ‘tax on jobs.’ This policy shift is expected to generate £26 billion for government coffers; however, experts warn that the actual yield might be substantially lower, estimated at around £16 billion, due to hampered wage growth and job opportunities.
Stephen Millard, NIESR’s deputy director for macroeconomic modeling and forecasting, has pointed out that the NICs hike is likely to hinder job creation, thereby exacerbating unemployment rates over the coming years. He highlighted that joblessness is anticipated to increase as the economy struggles to absorb the impact of such fiscal measures. This sentiment is echoed within the organization as they predict that lower-income households will bear the brunt of these changes. With inflation persisting at high levels and personal tax thresholds frozen, these households will see a decrease in disposable income, adding to their financial woes.
In response to these challenges, Adrian Pabst, NIESR’s deputy director for public policy, suggested an alternative approach of raising income taxes for higher earners rather than maintaining frozen personal tax thresholds. According to Pabst, this would better support the living standards of struggling lower-income families.
The budget’s tax changes have also led to increased borrowing by £28 billion annually, subsequently causing turbulence in the UK bond market. Recent auctions of 10-year government bonds have witnessed minimal demand despite higher yields, signifying investor apprehension about the rising levels of government debt.
With inflation projected to rise above 3% early next year, the Bank of England is expected to tread carefully regarding interest rate reductions, with a modest cut of 0.25% anticipated in its next meeting. Projections suggest that inflation will continue to challenge UK growth, with minimal growth expected through 2024, gradually improving by 2026. Currently, unemployment averages at 4.2% but is expected to climb as the economic landscape remains uncertain.
In light of these fiscal changes and economic indicators, the UK job market faces a challenging path ahead, with rising unemployment and economic uncertainty looming.
