Research from UK professional services firm S&W has found that more than half of business owners polled have, or are planning to, cut staff numbers in response to the increase in employer National Insurance Contributions (NIC).
The research, which polled 500 UK business owners with turnovers of £5 million or more, found that 20% have already reduced their staff headcount as a direct result of NIC changes, with another 33% planning to make cuts. In total, 53% of businesses are reducing staffing numbers as a result of the changes that came into force in April.
In addition to cutting staff, respondents said they were reducing staff hours (59%), implementing pay freezes (51%) and hiring freezes (56%), increasing prices (76%), scaling back expansion plans (61%) and increasing the use of automation to replace people (59%) – all as a direct result of the increase.
When asked what concerns they envisioned for coming months, a quarter said they expected labour shortages or skills gaps and increased labour costs to be an issue (24% and 23% respectively). Increased taxation was cited by most business owners as their biggest worry, with 25% saying it could negatively impact their business.
S&W partner Claire Burden commented:
“Businesses face considerable challenges in the current economic climate, and many owners are having to make difficult decisions to stay afloat. Given that salaries represent a considerable proportion of the overall cost base for most businesses, it is to be expected that many are looking closely at headcounts in response to the increased National Insurance costs.”
Partner Alex Simpson added:
“For most businesses, the extent of the employers’ NIC change was a surprise. We anticipated an increase in the employers’ rate, but the additional reduction to the earnings threshold was not expected and is expected to have a dramatic impact over time.
“This should come as no surprise given previous NIC increases prompted warnings from the Office of Budget Responsibility that ‘the economic incidence of the tax is passed through entirely to lower real wages in the medium term’.”
The survey also found that almost half of the businesses surveyed (48%) said the autumn budget had worsened prospects, with 47% saying government policies are deterring them from expanding their business.
The figures form part of the S&W Business Owners Sentiment Survey, which can be seen in full at www.swgroup.com/insights-events/insights/the-sw-business-owners-sentiment-survey.
