Hospitality, Retail and Small Businesses Warn of Job Cuts and Price Hikes as Employer NIC Rise Takes Effect

Businesses across hospitality, retail and the small business sector are bracing for increased costs and challenging times ahead as the rise in employers' National Insurance contributions (NIC) from 13.8% to 15% kicks in.

Chancellor Rachel Reeves announced in the October budget that the rate of NIC would increase, alongside lowering the threshold for paying NIC from £9,100 a year to £5,000, meaning employers will begin contributions earlier on staff salaries. The Chancellor acknowledged the difficulty of the decision, noting that it will raise £25bn per year by 2029 and stating she did not "take this decision lightly".

Hospitality Facing Crisis

The hospitality sector has voiced serious concerns, predicting closures, reduced opening hours, and significant price rises. Dan Brod, co-owner of The Beckford Group, a collection of restaurants and country pubs in southwest England, described the economic climate as "much worse" than during COVID. The Group has halted expansion plans and said they have no choice but to raise prices. However, with increasing supplier costs, wages, business rates and the NIC rise, they expect merely to "stay still" financially.

"What we're nervous about is we're still in the cost of living crisis and even though our places are in very wealthy areas of the country, Wiltshire, Somerset and Bath, people are feeling the situation in their pockets," said Brod. He added that they are retaining staff due to their reliance on quality hospitality but warned, "We're not valued as an industry and the social benefit is never taken into account by government."

Aktar Islam, chef and owner of two Michelin-starred restaurant Opheem in Birmingham, anticipates additional NIC costs of up to £120,000 annually, requiring an extra "million pounds" in turnover to maintain current financial positions. Islam has paused his usual annual hiring of four commis chefs, describing the government's actions as "short-sighted".

"You're not going to grow the economy by taxing hospitality out of existence," Islam told Sky News. Highlighting the severe pressures, Islam recently sent hundreds of his "at home" meal kits to fellow chefs' teams as "a little hug from us," recognising the challenging situation.

Retailers Predict Job Losses and Higher Prices

Major retailers including Tesco, Boots, Marks & Spencer and Next have warned Chancellor Reeves that the NIC rise will lead to increased consumer prices, smaller pay rises, job losses and potential store closures.

Helen Dickinson, head of the British Retail Consortium (BRC), said rising national living wage and NIC contributions add more than 10% to hiring costs for entry-level positions. Retailers also face an additional £7bn burden from new packaging taxes in October. "This huge cost burden will undoubtedly reduce investment in stores and jobs and is likely to lead to higher prices," Dickinson explained.

Nick Stowe, chief executive of Monsoon and Accessorize, stated that protecting staff numbers would mean shelving expansion plans and confirmed price increases to maintain employment levels.

Small Businesses Feeling the Strain

The Federation of Small Businesses (FSB) reported that 85% of 1,400 small business owners surveyed in March have seen significant cost increases, with nearly half citing tax as the main barrier to growth.

Kate Rumsey of Rumsey's Chocolates, with shops in Buckinghamshire and Oxfordshire, faces a 15-17% rise in staff costs, equivalent to an extra £70,000-£80,000 annually. To manage these expenses, she has reduced opening hours, made redundancies, frozen hiring and increased product prices by about 10%, with further rises expected.

"I feel this is a bit about the survival of the fittest and many businesses won't survive," Rumsey commented.

Tina McKenzie, policy chair at the FSB, called on the Chancellor to introduce "pro-small business measures" in the autumn budget, noting that small business confidence is at its lowest since the pandemic began. She reminded employers they could claim the Employment Allowance, now doubled to £10,500 following FSB campaigning, to help alleviate costs.

Source: Sky News