Retailers and hospitality firms are staring at an unprecedented rise in staff tax bills this year, triggered by Chancellor Rachel Reeves’s decision to increase employer National Insurance contributions alongside an above-inflation hike to the minimum wage.
New figures compiled by the Centre for Policy Studies (CPS) show that the annual cost of employing one full-time minimum wage worker will jump by £2,367 to more than £24,800, of which over £5,000 will go directly to the Treasury. More than a fifth of the amount businesses spend on those staff — 21.3 per cent — will now be swallowed up in taxes, up from 17.5 per cent last year.
This represents the largest year-on-year increase in the so-called “tax wedge” since the minimum wage was introduced in 1999. The wedge — which includes levies paid by employers and by workers themselves — had never exceeded 20 per cent until now. By comparison, in 2015 it was just 11 per cent for a minimum wage role, when a rise in the personal allowance led to lower taxes overall.
Robert Colvile, director of the CPS, criticised Labour’s approach, warning that heavier taxation on jobs would harm Britain’s growth prospects. “Labour claims to understand the importance of growth and to have made it a priority. But it was clear from the moment of the Budget that taxing jobs and work would damage the economy,” he said.
The sectors most affected will be retail and hospitality, which together rely heavily on lower-paid, often part-time staff. Kate Nicholls, chief executive of UKHospitality, urged the Government to reconsider: “We’re calling for a delay to its introduction in April to give the Chancellor time to consult with businesses on measures that can protect businesses and team members.”
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