‘Jobs tax’ could cost £6.5bn in lost growth, PM warned

A NATIONAL Insurance increase will deal the UK’s recovery up to a £6.5billion blow, risk thousands of jobs and worsen inequalities, economists have warned as the Prime Minister readies a tax raid to fund a social care overhaul.

Boris Johnson was urged to reconsider the proposals to pay for elderly care by tapping the tax on 25million workers and 1.4million employers with forecasters warning that higher hiring costs will hit jobs.

The Prime Minister’s plans are expected to be unveiled this week but have faced a backlash from businesses that called the increase a “jobs tax”.

The 1 percentage point NI hike preferred by No10 would dampen Britain’s recovery, roughly reducing GDP by 0.15 per cent, worth £3.3billion in pre-Covid output, says Capital Economics.

The 2 point rise Sajid Javid, the health secretary is said to be pushing for would cut GDP 0.3 per cent, a £6.5billion hit as it reduces the money in workers’ pockets and firms’ hiring power.

The Centre for Economics and Business Research (CEBR) said younger people and low earners would be worst affected by a proposed tax rise to help older Britons. It estimates that workers in the Covid-hit retail, hotel and restaurant sectors will pay an extra £100 to £200 from a 1 to 2 per cent hike while wealthy workers who have retired will pay nothing extra.

“There will be a GDP impact through the reduction in spending of those at the lower end of the income spectrum who will see the rise in NI contributions,” said Josie Dent, at CEBR.

“Increases in NI contributions may have an impact on employment, at a time when increasing employment is likely to remain an economic priority,” Ms Dent said. “This could easily be the difference between hiring an extra junior worker or not.”

CEBR estimates that a typical small business with 50 employees will pay an extra £10,000 to £20,000 annually, depending on the size of the tax rise.