Business insurance

Ukraine crisis puts Sunak under new pressure to end National Insurance hike | Taxes and expenses

Chancellor Rishi Sunak is coming under renewed pressure from MPs and business groups to rethink plans to boost National Insurance next month amid growing fears that Ukraine’s invasion of Ukraine Russia significantly aggravates the cost of living crisis and plunges the economy into “stagflation”.

Tory and Labor MPs believe Sunak can still be persuaded to drop the 1.25 percentage point hike – announced last September to fund the NHS and social care – and want him to use the potentially devastating effects of events in Ukraine on prices as justification for what they say is an urgently needed U-turn.

Former minister David Davis said on Saturday that history shows that sharp rises in oil and gas prices tend to trigger stagflation – when prices soar and economic output plummets at the same time. What is needed, he said, is lower taxation as part of a concerted strategy to spur growth.

Davis said: “The case for lowering this rise is even stronger after recent events. We know that there are members of the government who are in favor of canceling the increase, and this [Ukraine] gives him a reason to change his mind.

Many senior Tories, including Cabinet Minister Jacob Rees-Mogg and Treasury Select Committee Chairman Mel Stride, have already called for the 1.25 percentage point hike to be scrapped. But the government vowed before the Russian invasion of Ukraine to go ahead.

Today, however, the economic context has deteriorated. The invasion has caused oil and gas prices to spike sharply, while supplies from Ukraine of everything from barley to copper and nickel are cut off. Ukraine is known as the “breadbasket of Europe” and its ability to supply foreign markets is expected to be severely affected, with a consequent effect on prices.

Today the Small Business Federation is urging ministers to mitigate the impact on its members of National Insurance hikes – and dividend tax increases – warning that, without help, businesses in the very areas that the government has promised to “level up” will be the hardest to hit.

The FSB wants an increase in special allowances which give small employers reductions on their National Insurance bills, to offset the effects of the hike. His analysis shows the hike will add more than £3,000 to the average small business’ annual tax bill. These businesses will also face an increase to £9.50 in the “national living wage” for employees over the age of 23 from the start of April.

David Davis warned of the dangers of stagflation. Photography: Jonathan Hordle/REX/Shutterstock

FSB National Chairman Mike Cherry said: “The government’s upgrade plans are now in serious jeopardy. The crippling impact of National Insurance hikes will hit the wages of those in the regions most in need of help.

“Hitting small businesses with a job tax hike will stifle investment, upskilling and growth in the communities hardest hit by the pandemic.

“In its next spring statement, the government can still make a difference by increasing the employment benefit to £5,000 and adopting our proposal to remove 200,000 more small businesses from the business rate system by leveling the target areas.”

Government analysis says that in the 2022-23 tax year, someone earning the median taxpayer income at the basic rate of £24,100 will pay an additional £180 a year in National Insurance, while someone earning the median taxpayer income at the top rate of £67,100 will pay an additional £715. It says the hike will also have a “significant impact” on more than 1.6 million employers.

Labor is also stepping up calls for the hike to be abandoned. Shadow Chancellor Rachel Reeves said the timing couldn’t be worse for households or businesses: ‘Many feel their money is already stretching less far. Our UK businesses hold the key to our economic recovery – now is not the time to place an additional burden on them. The government locks us into a cycle of high taxes and low growth. It’s time for them to revisit Labour’s proposal for a windfall tax on oil and gas producers to cut household energy bills by up to £600 by scrapping VAT on household energy bills and by extending the discount on hot houses.

In January, Boris Johnson and Sunak wrote a joint newspaper article insisting they would push ahead despite pressure from their own backbench MPs to think again.

“We need to move forward with the health and care tax,” they said. “It’s progressive: the burden falls most on those who can most afford it.

“Every penny of this £39billion will go towards crucial goals – including 9 million more checks, scans and operations, and 50,000 more nurses, as well as strengthening social care.”