Any move to increase employers' national insurance contributions is a 'real concern' for businesses in Cumbria, according to a local business peer network.
Suzanne Caldwell, managing director of Cumbria Chamber of Commerce, said numerous challenges for businesses and workers alike would be presented if a rise is announced in Chancellor Rachel Reeves' budget on October 30.
Ms Reeves has refused to rule out this increase, stressing instead that Labour has promised not to raise taxes on 'working people', despite previously admitting a plan to increase employers’ NI contributions was 'the worst possible tax rise at the worst possible time' and would affect employees’ pay packets.
Employers currently pay 13.8 per cent on earnings above £175 a week, or £9,100 a year, under Class 1 NI contributions.
It is deducted and set aside for HMRC before wages are paid out.
The employment allowance allows eligible businesses to reduce their NI liability by up to £5,000 a year, which takes many small firms out of paying employer NI contributions altogether.
A one percentage point increase in the Class 1 rate could raise £8.45billion over the 2025 to 2026 tax year, and a two percentage point hike could raise £16.9billion, according to data compiled by HMRC and EY.
This would go some way to closing the £22billion 'black hole' which Ms Reeves said had been inherited by the previous Conservative government, and to help fund spending promises.
There has also been speculation that the government was considering introducing NI on employer pension contributions as a way of raising additional revenue.
The IFS calculated that this could raise around £17billion per year if taxed at the same 13.8 per cent rate.
Ms Caldwell said the effects of an increase are 'more far-reaching than immediately obvious'.
"If the rate does rise, and/or is extended to pension contributions, this will clearly affect the cost to employers significantly.
"Each employer will then need to decide how they deal with that, depending on their own circumstances and affordability constraints, and remember many are working on tight margins already, and a move on employers’ NI takes no account of that employers’ ability to pay," she said.
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She added that a rise wouldn't affect workers' pay packets directly short term, but there are 'indirect and longer-term effects', such as employers 'understandably' having to take the cost into account when considering future pay awards. a consideration on whether to take on more staff, replace leavers, or let people go, making decisions on working hours, putting up prices, and then ultimately, an impact on inflation which then influences interest rate decisions which affect 'the real value of pay'.
Ms Caldwell said: "As if that weren’t enough, additional costs to employers will also impact on investment decisions, and so on future growth, productivity and profitability – which affects both the taxes they pay to support public services and the money they have available to pay staff."
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