Changes to the employer National Insurance Contribution (NIC) threshold will lead to business closures and job losses within a year, hospitality sector leaders have warned, calling on Chancellor Rachel Reeves to take action.
Currently, businesses pay a rate of 13.8 percent on employees’ earnings above a threshold of £9,100 a year. Labour raised the rate in its Budget to 15 percent from April next year and reduced the threshold to £5,000.
Meanwhile, the employment allowance—which lets firms reduce their NI liability—will increase from £5,000 to £10,500.
The measures will hit part-time and lower earning employees, hired by high street venues, as well as the leisure and catering sectors, the letter said.
The CEO of UKHospitality, Kate Nicholls, cautioned that without action, growth plans for many businesses will be affected, risking closure for smaller venues.
“There is no capacity to pass the costs onto customers. Businesses would be reluctantly forced to raise prices by 6-8%, fuelling inflation, yet could not realistically do so as our customers are at the end of their ability to pay more.
“Instead, many businesses would have to reconsider investment and drastically cut jobs and reduce the hours of team members. Contract catering, a significant part of our sector, would struggle to meet important public sector catering contracts for schools, hospitals, and prisons,” Nicholls wrote.
Under current plans, minimum wages will rise next year to £12.21 an hour for those aged 21 and over, with further increases for younger workers. Reeves called the increase a “significant step” towards delivering the government’s pledge of a “genuine living wage.”
Recommendations
Hospitality bosses acknowledged the government’s ambition to boost economic growth, but suggested that changes to NIC do the opposite. The policy “balances the books on the backs of businesses” that provide jobs, while sparing firms that used technology to “shed jobs,” the letter said.The signatories put forward two recommendations to mitigate the impact of the announced employer NIC changes.
They advised the Treasury to create a new employer NICs band from £5,000 to £9,100 with a lower rate of 5 percent.
Another recommendation, brought forward in the letter, was to exempt lower band taxpayers working fewer than 20 hours per week, to support part-time and lower paid workers.
UKHospitality said that while its proposals “come at an immediate financial cost,” the cost of inaction would be substantially higher for taxpayers and public finances.
Defending the policy, Reeves suggested that rather than lowering staff wages, businesses can “absorb” the employer NIC increases by accepting reduced profits or through efficiency gains.
But feedback from the sector, according to the UKHospitality, showed that venues will be forced to cut hours, scale back recruitment, and let people go, “because they simply can’t afford the scale of these costs.”
The trade body, supported by bosses of Fuller’s, Stonegate Group, and Whitbread, also recommended in-year mitigations, which include bringing forward the business rates reform to April 2025 or reversing the last temporary increase in VAT from 17.5 to 20 percent.
The government said its business rates reform will be in place from April 2026–27. Under changes, firms with a rateable value under £500,000 will pay less in business rates. This will be funded by introducing a higher multiplier on properties with a rateable value of £500,000 and above.
The last temporary increase in VAT to 20 percent was introduced as part of the 2010 Budget under George Osborne. The latest Autumn Budget didn’t change the rate or the VAT registration thresholds.
