{"id":2640,"date":"2025-03-26T10:30:59","date_gmt":"2025-03-26T10:30:59","guid":{"rendered":"https:\/\/blogs.bath.ac.uk\/iprblog\/?p=2640"},"modified":"2025-03-25T20:59:16","modified_gmt":"2025-03-25T20:59:16","slug":"uk-businesses-face-a-big-tax-hike-so-what-does-it-mean-for-workers-and-the-economy","status":"publish","type":"post","link":"https:\/\/blogs.bath.ac.uk\/iprblog\/2025\/03\/26\/uk-businesses-face-a-big-tax-hike-so-what-does-it-mean-for-workers-and-the-economy\/","title":{"rendered":"UK businesses face a big tax hike. So what does it mean for workers and the\u00a0economy?"},"content":{"rendered":"

\"\"<\/a><\/p>\n

From April 2025, UK businesses face a sharp rise in employer national insurance contributions, increasing costs across key sectors like hospitality and healthcare. While many fear job cuts and price hikes, others see an opportunity for innovation. Phil Tomlinson and David Bailey explore the potential impacts, from economic strain to the possible benefits of automation and productivity growth.<\/em><\/p>\n

Phil Tomlinson<\/a> is Professor of Industrial Strategy and Co-Director Centre for Governance, Regulation and Industrial Strategy (CGR&IS) at the University of Bath<\/a>and David Bailey<\/a> is Professor of Business Economics at University of Birmingham<\/a>. This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article here<\/a>.<\/em><\/p>\n

\n

Employers in the UK are about to be hit with a hefty tax rise. From April 1 2025, their national insurance contributions<\/a> are rising to 15% on salaries above \u00a35,000, instead of 13.8% on salaries above \u00a39,100.<\/p>\n

Unsurprisingly, business owners are not happy. Since the change was announced last autumn, many have complained about the effect it will have on their ability to invest and hire staff. Care homes<\/a>, supermarkets<\/a> and GP surgeries are among those who have voiced their concerns, and a recent survey<\/a> found that 54% anticipate raising prices.<\/p>\n

Some industries will be affected more than others. The hospitality sector, for example, expects around \u00a31 billion in additional costs<\/a> (alongside an inflation-busting minimum wage increase<\/a>, which also comes into play on April 1). Partly because of these changes, manufacturing confidence<\/a> has already taken a hit, contributing to a decline in overall GDP<\/a> since the start of the year.<\/p>\n

But Rachel Reeves, the UK\u2019s chancellor, has not budged, arguing that she needs to raise \u00a340 billion in tax revenue<\/a> to fund infrastructure and public services, and to address what she calls a \u201cblack hole\u201d<\/a> in the public finances.<\/p>\n

She had previously condemned the Conservative government\u2019s employer national insurance hike in 2022 as a \u201ctax on jobs\u201d<\/a>. Yet a Labour party manifesto pledge not to raise<\/a> personal income tax, employees\u2019 national insurance or VAT, has effectively left her with few options.<\/p>\n

As a result, the burden has been placed firmly on businesses. But in the UK\u2019s sluggish economy<\/a>, any added cost pressures could push struggling firms into pay freezes and cutbacks.<\/p>\n

Others may seek ways to mitigate the national insurance rise through creative accounting<\/a>, by offering salary sacrifice schemes (such as cycle-to-work or electric vehicle purchase programmes) instead of direct wage increases.<\/p>\n

Some firms will no doubt explore other cost-cutting measures, such as reducing office space by encouraging more remote work<\/a>. Or they may shift towards gig economy models<\/a>, where they employ workers as \u201csubcontractors\u201d rather than as salaried staff. Larger firms might even move jobs abroad<\/a>.<\/p>\n

Productivity push?<\/h2>\n

But there could be an upside to all of this. Despite being politically sensitive, there is an economic argument<\/a> for raising employment costs as a way of driving innovation and productivity. And some enterprising businesses may respond to the financial pressure by investing in labour-saving technology.<\/p>\n

For years the UK has relied on a low-wage, loosely regulated labour market<\/a>. This has allowed businesses to hire and fire with ease, but has also led to persistently low levels of investment<\/a> and weak productivity growth<\/a>.<\/p>\n

Put simply, UK workers are often using outdated tools and equipment, making them less productive<\/a> compared with their international competitors. Over time, this depresses wages, lowers economic growth<\/a> (and living standards) and limits funding (through tax raised) for public services.<\/p>\n

Raising employment costs may now incentivise businesses to invest in automation and efficiency-enhancing technologies. The feasibility of this shift depends on what economists call the \u201celasticity of substitution\u201d<\/a> \u2013 the ease with which labour can be replaced by technology while maintaining (or improving) output.<\/p>\n

And evidence suggests automation and AI can drive productivity improvements<\/a> even in traditionally labour-intensive industries. For instance, in social care<\/a>, AI may be used to create personalised treatment plans, while robots could provide patients with physical, social and cognitive support.<\/p>\n

So far, the UK care sector has been slow to adopt<\/a> such technology, lagging behind the likes of Australia, the Netherlands<\/a> and Japan<\/a>.<\/p>\n

Similarly, in hospitality<\/a>, there are opportunities to use AI for predictive ordering and automated waste management. This could help hotels and restaurants reduce food waste, streamline supply chains and improve their profitability. Some businesses are also exploring robotic concierge services<\/a> and automated customer interactions.<\/p>\n

Incentives and stability<\/h2>\n

To ensure businesses embrace these productivity-boosting innovations, government support is essential. A well-designed industrial strategy is still needed to position the UK at the forefront of the \u201cindustry 4.0\u201d technological revolution<\/a>.<\/p>\n

And, critically, businesses also need confidence in the broader economic outlook. Yet with continuing geopolitical uncertainty, trade tensions and fears of a global recession<\/a>, the future feels fragile.<\/p>\n

The government\u2019s challenge lies in encouraging businesses to adopt a strategy<\/a> which ensures that investment in innovation actually materialises, and the benefits emerge swiftly. If businesses fail to adapt, or if productivity gains take too long, then the national insurance hike could just result in higher costs without any boost to growth.<\/p>\n

Ultimately, success hinges on whether businesses view this tax rise as a burden to absorb or an incentive to modernise. In the coming months<\/a> and years, the government will need to show it is willing to offer businesses more support \u2013 and improve their confidence levels \u2013 if there is to be a revival in investment and productivity.\"The<\/p>\n

All articles posted on this blog give the views of the author(s), and not the position of the IPR, nor of the University of Bath.<\/span><\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

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