Has the employer National Insurance rise proved to be a tax on jobs?

In her first Budget last October, Chancellor Rachel Reeves announced a series of changes to employer National Insurance contributions (NICs), designed to raise £25 billion a year – although £10 billion of that was expected to be lost as profit margins are squeezed and businesses pare back pay rises and hiring, and raise prices.

The new parameters – raising the employer NICs rate from 13.8% to 15% and cutting the threshold at which it kicks in from £9,100 to £5,000 a year – came into effect on 6 April 2025. Early signs are that, as many businesses predicted, it has been more damaging for jobs than the Chancellor anticipated.

HMRC’s April tally of payroll employment – from the real-time information it gathers under employers’ PAYE schemes – provided a first glimpse at the impact on job numbers. Back in October, the OBR said it expected the “measure to reduce labour supply by around 0.2 per cent, or a little over 50,000 on an average-hours equivalent basis, by 2029-30. This is evenly split between a reduction in employment and a reduction in hours by those who stay in work”.

Understanding how this rise in employer National Insurance fits within the wider post-election tax landscape is critical, including where further tax pressure could fall on business.

The way the tax rise was designed meant that the largest proportionate rises were for people on lower pay – especially part-time workers earning in the £5,000 to £9,100 a year bracket that became subject to employer NICs. For this group, employers’ total labour costs increased by 6% as a result of this measure alone. These lower-paid jobs were also more likely to be affected by April’s 6.7% rise in the National Living Wage (NLW) that was announced at the same time.

How does that 50,000 OBR estimate compare to the initial data?

Between October 2024 and April 2025, employee jobs fell by 167,000 in the RTI data (Figure 1). While there are undoubtedly other contributing factors, including the increase in NLW that took effect from 1 April 2025 and heightened global economic uncertainty, the raw numbers suggest the OBR may have underestimated the adverse effect of the tax rise on jobs. Indeed, the picture looks worse still in the latest data for May, with employee jobs down another 109,000 in that month alone – but since the ONS has warned that these figures were estimated earlier than normal within the month, we focus here on the period to April.

Figure 1: Employee job losses between October and April by sector and age group 

Which sectors have been hit hardest?

On a sectoral basis, the net job loss of 167,000 reflects a decline of 222,000 jobs in sectors where employment has fallen, partially offset by an increase of 55,000 jobs in sectors where employment has risen (shown on the left side of Figure 1). By far the largest fall (of 71,000), accounting for 42% of the 167,000 drop overall, is in the accommodation and food services sector, which includes hotels, pubs and restaurants. This rises to around 60% of the total when you add in the retail sector (down 28,000).

These are both sectors that employ relatively large numbers of lower-paid or part-time workers – precisely those for whom employer NICs costs have been raised the most in proportionate terms. They are also the sectors where larger shares of the workforce are affected by NLW rises that limit employers’ ability to squeeze wages to protect jobs in the face of higher payroll costs.

Which age groups have been hit hardest?

For a deeper look at Labour’s direction of travel on worker rights, labour costs and the labour market, read our analysis of the party’s plans for workers and trade unions.

By age (shown on the right side of Figure 1), job losses have been even more concentrated, almost entirely explained by those under 35 (159,000 out of 167,000). Indeed, around 40% of the drop in employee numbers is among under 25s – this is despite this group only making up an eighth of the workforce and only those aged 22 and over being liable to employer NICs.

This sharp fall among under 25s (of 1.6% between October and April vs 0.5% across all ages) suggests an important role for the higher NLW in this age group – the rate for 18-20 year olds was raised by 16.3% on 1 April and for 16-17 year olds by 18.0%, adding very significantly to labour costs among those groups.

The drop in employee jobs among younger workers will be particularly worrying for policymakers trying to address the UK’s problem of more than 900,000 young people that are not in employment, education or training (so-called NEETs). If the NICs and NLW rises have undermined entry-level employment opportunities, they could exacerbate this problem.

Where are jobs being lost?

With the exception of Northern Ireland, no part of the UK has been spared job losses since last October’s Budget (Figure 2). Moreover, the sectoral impact has been consistent across the country: in percentage terms, hotels, pubs and restaurants have been the hardest hit in every region. In absolute terms, London has fared particularly badly, with employment down 47,000 in total and down 14,000 in the accommodation and food services sector alone.

Figure 2: Employee job losses by region and sector

What messages should we take from this?

Looking ahead to this Autumn’s Budget, the greater-than-expected (and highly concentrated) impact of the rise in employer NICs has emerged as an unwelcome economic headwind.

We’ve also explored how the UK can move toward a more growth-friendly regulatory climate - a critical backdrop to debates about labour taxation and business costs.

Avoiding adding to this burden on businesses will be key to enabling the Government to deliver the growth that lies at the heart of its economic strategy.

Making the case for business-friendly reforms will require not only robust economic analysis and evidence but must also speak to the official methodologies used in Government – including where they need to be challenged, as appears necessary with the impact of the employer NICs reforms. These forecasts and methodologies underpin the all-important economic and fiscal arithmetic that determines the Chancellor’s headroom against her fiscal rules. Our team brings a wealth of experience and expertise to support you in this effort.

This blog was written by Surjinder Johal (Director), Andy King (Specialist Partner), and Ellen Brett (Manager).

All three authors joined Flint Global from the UK’s Office for Budget Responsibility (OBR), bringing deep expertise in public finances and economic analysis. Surjinder draws on his two decades of experience at the OBR and HMRC to advise clients through robust economic modelling and fiscal analysis. Andy leads Flint’s economic modelling and analysis work, following a decade as a senior leader at the OBR, preceded by several senior roles within HM Treasury. Ellen contributes analytical insights and policy expertise across a range of tax and economic issues.

Please get in touch for more information on the topics covered in this blog or other ways we may support you.