Rachel Reeves in Canary Wharf (Image: Getty)
Rachel Reeves' plan to increase national insurance contributions (NICs) for employers is a "ticking time bomb" under the UK economy, the shadow chancellor has warned. Mel Stride has called on the Chancellor to reverse the decision she took in her Autumn Statement to hike NICs from 13.8% to 15% and reduce the threshold at which employers pay NICs from ￡9,100 to ￡5000. The move will come in to affect for firms on April 6.
Writing in the Telegraph, he said: "This is not just another tax increase. It’s a ticking time bomb that threatens to further decimate jobs, stunt economic growth, and escalate inflation – making an already difficult economic situation far worse.”
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He added: “A 1.2% increase to employers’ National Insurance contributions might not sound a lot, but as an entrepreneur, I can tell you it’s a significant sum that will see jobs cut, wages stagnate, investment plans shelved, prices rise, and businesses fold.”
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Mel Stride has called on the Chancellor to reverse her national insurance hike (Image: Getty)
In particular, the hospitality sector is warning that the decision could see widespread job losses, as pubs and clubs become unable to afford to keep or hire bar staff. The industry adds that Ms Reeves' NICs hike could even see venues close their doors for good.
The Office for Budget Responsibility (OBR) believes that the tax increase could see payroll costs increase by 2%. The Conservatives have said they will back the Government, if it brings a motion to the House of Commons to axe the NICs changes.
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The redrawn rules are expected to raise between ￡23.8bn and ￡25.7bn a year for the Treasury, covering the cost of Labour's increased spending commitments.
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However, Mr Stride has warned that the extra revenue may be consumed by the Government's increased borrowing costs.
He said: “Thanks to the Chancellor’s decision to also ramp up borrowing, the money raised by her Jobs Tax will be swallowed up by higher spending on debt interest – not spent on the public’s priorities but poured down the drain.”