The UK’s autumn budget brought helpful economic measures to help people tackle rising costs and be better equipped to deal with inflationary pressures. However, with taxes set to rise across the country, businesses are facing challenges when hiring full-time low-wage workers due to increased national insurance (NI) contributions. This could set back small businesses and startups in particular who are already struggling with rising operational costs.
For low-income workers, the challenges are manifold. While minimum wage increases will potentially boost earnings per hour, it’s become more expensive for businesses to employ workers. As a result, businesses and startups are less likely to expand their workforce.
This means that low-income workers might be under increased financial pressure to make ends meet with potentially reduced hiring opportunities. That’s why, in this article, we discuss how increased NI contributions impact businesses and low-income workers to help you make the right decision.
1. Impact on Lifestyle
Rising prices had already put a curb on people’s lifestyle choices as even occasional leisurely activities had become difficult to afford. For low-income workers already living a frugal lifestyle, the reduced take-home pay means forgoing even basic entertainment and making adjustments in their budget.
This could greatly impact their sense of well-being and have a detrimental effect on their quality of life. As a result, they’re more likely to turn to loan options like Salad payday loan alternatives to make ends meet. Although these loans are incredibly helpful in an emergency, they aren’t a long-term solution.
2. Reductions in Take-Home Pay
The cost-of-living crisis has impacted low-income workers the most. While government schemes and funds have provided some relief in tackling rising prices, the latest tax increase is set to cause further financial strain. This is because an increase in NI contributions means higher deductions from a worker’s gross income.
Even minor reductions in income can cumulatively add up, and for low-income workers, they’re acutely felt. The amount that could cover several weeks of essential expenses like energy bills, food, groceries and transport costs will now be part of monthly reductions.
To illustrate, someone earning £2000 a month could see a monthly deduction of £20-40. That’s approximately £240-480 per year. This could mean an immediate reduction in take-home pay and disposable income, which hampers wage perception and leads to reduced financial flexibility.
3. Reassessing Budgets
Low-income workers are already living on a shoestring budget, with many having to rely on low-cost credit options to manage expenses. While budgeting helps individuals with average pay to boost their savings and pay off debts, for low-income workers, budgeting just helps them survive paycheck to paycheck.
With new deductions in take-home pay and reduced disposable income, low-income workers are likely to bear the full brunt of increased NI contributions. This would greatly impact their household budgets as they’d have to cut back on non-essential spending and consider cheaper alternatives for essential goods and services.
Additionally, this could impact their long-term savings plan, making it difficult to save and invest for important financial goals. This means goals like buying a house, insurance or saving for an emergency fund can be delayed. As a result, low-income workers are likely to face greater financial insecurity.
4. Impact on Job Opportunities
NI contributions are set to go up significantly with businesses expected to pay approximately £2,500 in 2025 up from £1600 in 2014. This, combined with expected minimum wage increases from April this year, will make it challenging for employees to create new jobs or retain low-income workers.
As a result, employees are expected to reassess staffing needs, use automation where possible, and consider offshoring business operations for cheaper labour. Therefore, reductions in the workforce are a real possibility, and so is a proportionate decrease in work opportunities, especially for low-income workers.
This is especially relevant for workers in industries like forestry, retail trade, manufacturing, hospitality, and food services that employ low-income workers on a wider scale. While organisations are expected to adapt to these difficult changes, assessments prioritising performance and productivity will play a significant role in determining job retention.
5. Broader Economic Effects
Increased NI contributions have posed significant challenges for the job market, especially for small businesses and startups, already battling inflationary pressures and market volatility. As they face higher costs in hiring employees, especially low-income workers, businesses are bound to downgrade their staffing needs.
They’re more likely to consider freelancers and part-time contractors to get the work done instead of investing more in hiring full-time employees. While this might mean more flexibility in hiring for businesses, this translates to reduced job security and fewer worker benefits.
Additionally, if businesses prioritise temporary hiring instead of permanent positions, this could negatively impact job stability and the job market. Combine this with potential limits on salary increases to tackle NI costs and increases in minimum wage, and you have stagnant wage growth. This could give rise to a vicious economic cycle characterised by a flailing job market and reduced employment opportunities.
Conclusion
The autumn budget has proven to be a mixed bag with many economists expressing a cautionary stance over its proposed measures for economic recovery.
While relief measures to tackle the cost-of-living crisis have been commendable, the impact of increased NI contributions on businesses and workers is offsetting the budget’s potential benefits. This is because the job market will keenly feel its impact, particularly low-income workers.
We hope this article has proved insightful in understanding how the increased NI contributions impact low-income workers and businesses.
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