Workers across the country will be hit twice by Boris Johnson’s tax increase, according to a bombshell official assessment, as leading businessmen and Tory donors condemned the “unconservative” rise and a former minister separately warned that Britain risked becoming “Brussels on Thames”.
In a formal analysis, the Office for Budget Responsibility concluded that, in addition to the 1.25 per cent National Insurance Contributions (NICs) rise directly levied on employees, 80 per cent of the equivalent increase on employers’ contributions will be “passed through to workers via lower nominal wages”.
The remaining 20 per cent rise on companies’ tax bills will be shouldered by “consumers via higher prices”, according to an OBR assessment.
The analysis – which Labour said would take the average worker’s NICs rise from £274 to £500 per year – will dramatically heighten fears about the impact of the increase on the rising cost of living. Rachel Reeves, the shadow chancellor, said it undermined the Government’s claim that the increase was fairer than other options because it would be shared between staff and employers.
“This evidence that employees will be hit twice shows just how poorly thought through their tax hike is,” she told The Telegraph.
The disclosure comes as Conservative donors and businessmen attacked Mr Johnson and Rishi Sunak’s decision to press ahead with the increase despite mounting concerns over how many households will cope with a combination of the tax rise in April, together with a concurrent hike in energy bills and the rising prices of goods.
The hike faces significant opposition from Conservative MPs, but Mr Johnson and Mr Sunak have insisted it is “the right plan”.
Tom Tugendhat, a contender to succeed Mr Johnson, told the Telegraph the planned increase could “have a real and long-term damaging impact on people’s lives”, as he joins those urging the Prime Minister to scrap the plans.
Sir Rocco Forte, the hotelier, who gave £100,000 towards the Conservatives’ 2019 election campaign, said: “This government is no longer a conservative government. A time when most businesses are trying to recover from the devastating losses and extra indebtedness caused by government policies on Covid is not the time to raise the cost of doing business.”
Hugh Osmond, the founder of Punch Taverns, said: “Putting an extra tax on jobs at this critical time is kicking operators in the teeth when they are down, especially small businesses who have clung on through the bad times and now need to recruit new staff to get going.”
Meanwhile, writing in The Telegraph, Lord Bridges of Headley, a former Brexit minister, describes the Government’s economic policy as “left wing” and warns that Britain is drifting back to being “Brussels on Thames”, with Mr Johnson risking “taking us back to the soggy corporatism of the 1970s”.
Christopher Nieper, the managing director of the clothing manufacturer David Nieper, in Alfreton, Derbyshire, which donated £10,000 towards Mr Johnson’s 2019 leadership campaign, said: “A 1.25 per cent NI rise may seem trivial to the mandarins of the treasury, but in left-behind communities the impact is significant. If they want the private sector to spearhead levelling up in every corner of our country they should switch tax rises into tax incentives for skills.”
Mr Nieper added: “We are in one of Britain’s forgotten towns which the government would like to level up, but for our small business the NI tax rise will cost us and our staff £150,000 extra per year.”
Another Conservative donor said: “I don’t understand Boris. He has gone against everything he wrote for 20 years. I’ve given up on him, and I never thought I’d say that.”
Neil Westwood, the managing director of Magic Whiteboard, a Worcester-based stationery company, said: “NI is a jobs tax – as such won’t be adding any more jobs at the moment.
“Under David Cameron, we got a £3000 reduction in NI. This government is pretending to be blue, and in reality have red and green policies … We are all now going to have to pay for these spending decisions. Mrs Thatcher would be turning in her grave.”
Richard Patient, the managing director of Thorncliffe, a planning firm, said: “When everyone’s take home pay isn’t going as far as it did because of inflation and gas price increases, this Government should be thinking of deleting some of the EU regulations they promised they would, rather than putting up income tax in all but name … this is a tax on hiring people.” Mr Nieper, Mr Westwood and Mr Patient are supporters of the Independent Business Network campaign group, which opposes the rise.
An assessment of the NICs rise contained in the OBR’s 255-page October outlook states: “While the statutory incidence of employer NICs and the equivalent element of the levy is on businesses, we assume the economic incidence of the tax is passed through entirely to lower real wages in the medium term, with 80 per cent of the increase passed through to workers via lower nominal wages and 20 per cent to consumers via higher prices.
“The pass-through does not take place immediately, however, with firms absorbing 20 per cent of the cost in lower profits in the first year. This leaves nominal earnings 0.5 per cent lower and prices 0.1 per cent higher from 2023-24 onwards.”
Labour said that the additional 80 per cent would amount to an extra £227 in lower wages for a typical earner on weekly full-time pay of £611. Taking into account the £274 increase in employer’s NICs, such workers will pay £501 extra per year in NICs alone, putting aside the increase in energy bills.
Ms Reeves said: “It is the worst possible tax rise at the worst possible time and will hit businesses and working people across our country at the exact moment prices rise and energy bills for businesses soar.”
In September, The Telegraph disclosed that an official assessment signed off by the Treasury warned that the NICs rise, which will take the form of a new health and social care levy from next year, could result in the breakdown of families and deter companies from hiring new staff and increasing wages.
Mike Cherry, the national chairman of the Federation of Small Businesses, said: “The Government’s planned NICs hike will add billions to the costs of doing business just when we’re trying to get firms firing on all cylinders again.
“That’s money that could be spent on investment, hiring and training as we look to rebalance the economy and bounce back from an incredibly severe recession.”
A Treasury spokesman said: “We’ve been there for small businesses throughout the pandemic with a £400 billion package of support including grants and tax cuts that has protected millions of jobs.
“It’s right that employers, who benefit from a healthy workforce, contribute to the Health and Social Care levy so the costs are more widely shared.
“Thanks to our Employment Allowance, which already doubled from £2,000 to £4,000 since 2014, more than 600,000 of the smallest businesses will not pay it. “