Hospitality bosses warn Reeves’ UK tax increases will lead to ‘drastic’ job cuts

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

More than 200 bosses in the hospitality industry have warned Rachel Reeves that her national insurance tax increases will lead to “drastic” job cuts and business closures.

The bosses, which include the heads of Fuller, Smith & Turner pub chain and Whitbread, have signed a letter from trade body UKHospitality to the UK chancellor saying the rises disproportionally affected the hospitality industry.

Reeves announced in the Budget that the rate of employers’ national insurance contributions would rise by 1.2 percentage points to 15 per cent from April. The threshold at which employers start paying NI for each employee has dropped from £9,100 to £5,000.

“The changes to the NICs threshold are not just unsustainable for our businesses, they are regressive in their impact on lower earners and will impact flexible working practices which many older workers and parents rely upon,” wrote Kate Nicholls, UKHospitality’s chief executive, in the letter.

The letter warns that cost increases will cause small business closures within a year, force businesses to reconsider investment plans and jobs to be drastically cut.

The signatories have called on ministers to create a new employer NICs band with a lower rate of 5 per cent for workers earning between £5,000 and £9,100, or to implement an exemption for lower-band taxpayers who work fewer than 20 hours a week.

The rise in national insurance contributions has already led to an outcry from businesses.

Companies, including retailers Marks and Spencer and J Sainsbury, pub chain JD Wetherspoon, Wagamama-owner The Restaurant Group and telecoms group BT, have said the rises will add millions of pounds to costs.

In a note published following the Budget, Morgan Stanley estimated that the changes will result in a 3 per cent increase in staff costs for UK retailers, which alongside the increases in living wages, would lead to an acceleration of food inflation.

Morgan Stanley found that the changes would mean the contributions of Tesco, the UK’s largest private sector employer, would increase by £250mn a year, up 45 per cent compared with its contributions under the existing structure.

Tesco declined to comment.

Sainsbury’s chief executive Simon Roberts on Thursday said that grocery prices would have to rise because supermarkets profit margins were already wafer thin.

“It will impact our own cost base . . . it will impact our suppliers’ cost base . . . I don’t think you can shy away from the fact that, because of the changes in everyone’s cost base, it is going to feed through into higher inflation,” he said.

Reeves has said that businesses should be able to absorb the additional cost by finding efficiencies and accepting lower profit margins.

Darren Jones, chief secretary to the Treasury, said the government would not reconsider its national insurance increase. 

“We did need to raise revenue from tax because of the state of the public finances that we inherited from the last government,” he told Sky News.

“But in the way we designed the employer national insurance scheme, we did it purposefully in a way that tried to limit the extra cost on small business, and so over 50 per cent of businesses will either pay exactly the same as they did before or less.”