Firms have no choice ‘but to raise prices’ to absorb NI hike

The looming national insurance tax hike will leave British businesses with no choice “but to raise prices,” a leading business group has warned.

Firms will have to pass on the cost of the 1.25 percentage point hike to consumers in a bid to offset severe margin pressure, according to the Institute of Directors (IoD).

Nearly one in four UK businesses are intending on lifting prices to offset higher tax bills, the IoD found.

Kitty Ussher, chief economist at the IoD, said: “Faced with the forthcoming increase in the cost of employing their teams, many businesses are planning to raise prices to offset the cost and/or rein in on their hiring plans.”

Strengthening incentives for businesses to raise prices risks feeding the inflationary spiral currently sweeping through the UK.

Figures published by the Office for National Statistics last week revealed the cost of living in Britain climbed to its highest level since March 1992, hitting 5.4 per cent.

“Our data shows that the tax rise is itself inflationary at a time when prices are already rising fast,” Ussher added.

Worryingly, higher tax bills could knock employment levels in the UK by steering firms toward retaining existing staffing levels in order to avoid paying more national insurance contributions by taking on more workers.

Mike Cherry, chief executive of the Federation of Small Businesses, told City A.M. the planned NI hike “will have a hugely damaging impact” on small businesses across the UK.

Swelling tax bills are also likely to deter employers from lifting pay, meaning Brits are set to swallow an erosion to their living standards caused by wages not keeping pace with inflation.