“Regressive” UK National Insurance contribution plans will cost hospitality industry £1B, says trade body

A fifth of the UK’s hospitality workforce will be eligible for the government’s new employer National Insurance contributions threshold, costing the sector £1 billion (US$1.2 billion), new UKHospitality analysis reveals.

The trade body says more than 774,000 workers will be newly eligible for contributions when the new rules come into effect on April 1 (currently more than 1.2 million staff are not eligible). The heavily criticized changes are part of the government’s October budget. 

UKHospitality says its sector will be “hit the hardest” due to the high number of employees working part-time or flexibly and is calling on the government to delay the plans. Combined with £2.4 billion (US$2.9 billion) of other costs landing in April, it says businesses are having to take hard decisions to cut investment, freeze recruitment, cut jobs, reduce hours or increase prices.

Kate Nicholls, CEO of UKHospitality, says: “The change to employer National Insurance contributions is one of the most regressive tax changes ever. The scale of this change is unprecedented, bringing three-quarters of a million people into this employer tax for the first time, and the extent of the impact will be enormous.”

Calling the changes “misguided,” she says there is still time for the government to act. The trade body outlines alternative options, including a new rate of employer contributions at 5%, rather than 15%, for earnings between £5,000 (US$6100) and £9,100 (US$11100). 

A lower rate for lower-earning taxpayers who work part-time could also be a possibility, it says, with both solutions ensuring lower earners aren’t hit the hardest.

“I hope the government can see the devastating impact this will have on businesses, team members and communities and pause these changes to pursue alternative measures, in partnership with business,” Nicholls adds.

Pressure on industry

The Food and Drink Federation (FDF) says businesses have been working hard to keep costs down for UK consumers in recent years. However, it stresses the increases, “plus the introduction of multibillion-pound fees” to businesses to pay for recycling reforms, are putting extra pressure on the industry.

“While businesses will continue to protect consumers from price rises as much as possible, these additional costs will affect the industry’s ability to invest in innovation,” Balwinder Dhoot, director of sustainability and growth at the FDF, tells Food Ingredients First. 

“By putting the food and drink industry at the heart of its Industrial Strategy, the government can create the right environment for businesses to invest and grow. By driving this growth, we can ensure the continued success of the UK’s largest manufacturing sector and protect the nation’s food security.”

The F&B industry has flagged significant concerns about the government’s impending plans in recent months. It follows a British Retail Consortium report, which revealed that two-thirds of UK retailers were set to raise prices due to the tax increases and other costs.

Large companies like Greggs, and Marks and Spencer have also spoken publicly about the scale of the impact on its businesses, with the latter estimating it could add around £60 billion (US$73 billion) to its costs. A recent letter, signed by 81 retail CEOs, was also sent to chancellor Rachel Reeves outlining concerns about the budget’s detrimental impact on companies. 

Last week, in response to the concerns a spokesperson for HM Treasury told Food Ingredients First that it was actively working with the industry to bring back “political and financial stability.”

“Capping the rate of corporation tax, establishing a National Wealth Fund and creating pension megafunds is just the start of our Plan for Change which will get Britain building, unlock investment and support business so we can make all parts of the country better off,” they said.