Rachel Reeves has acknowledged that there is a “valid argument” against her decision to increase employers’ National Insurance contributions, especially as youth unemployment in Britain approaches one million.
The Chancellor of the Exchequer acknowledged critics’ concerns that this tax increase might discourage hiring, particularly among younger workers. However, she maintained that the rise, which will take effect in 2024, is essential to secure funding for public services.
Business groups have consistently warned that higher employer contributions could increase hiring costs, making companies more hesitant to recruit new staff during an already fragile economic period.
These comments come as labour market data indicate a rise in youth unemployment, raising fears that a generation of young people may struggle to find work as companies tighten their hiring processes.
Despite the criticism, Reeves defended the decision, arguing that the government must make “difficult choices” to stabilise public finances while continuing to invest in key services.
She appeared at the Parliament’s Treasury Committee on Wednesday, Reeves said: “We did make the decision to increase national insurance in my first budget, and that’s because we needed to properly fund public services, including the National Health Service, which got a £29 billion-a-year uplift.
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“So, I do recognise, and it’s a valid argument to say that that should not have happened. But if that didn’t happen, we wouldn’t have been able to put the money into the NHS and reduce waiting lists.
“And reducing waiting lists in the NHS is also good for business, because it means that more people are available for work, and the workforce is healthier.
“But I do recognise there are particular issues around youth unemployment.
“A lot of that, with respect, we inherited with a big increase in the young people not in education, employment or training, but we are facing into that with actions coming on stream from next month.”
Kate Shoesmith, director of policy at the British Chambers of Commerce told the work and pensions committee: “When NI changes hit in April, 13% of our businesses said they made redundancies as a direct result of that.
“One particular mid-sized professional services firm said that the cost to them was £167,000 on their wage bill.
“When they were thinking about training and progression routes, bringing young people into the jobs market, into their businesses, they would have to pause some of those activities.”
Kate Nicholls, chairwoman of UK Hospitality, said: “In the last two years you’ve had changes, particularly changes in the Nics threshold that brought in just under a million people in hospitality for the first time.
“And because we disproportionately skew towards young people, that disproportionately impacts those first jobs, entry level jobs for 16-24 year olds.
“Those workers tend to need to work or want to work part-time, and those are the jobs where the tax rate has increased by 75%.”
