Charities, universities and GPs warn NI tax rise will hit jobs and services

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GPs, health and social care charities and universities have warned that Labour’s decision to raise employers’ national insurance contributions will lead to job losses and reduced services, as the extent of Budget tax rises became clear.

The government set aside about £4.5bn to cover the cost of the increased NI contributions for public sector workers, but it has not exempted “third sector” organisations, such as charities, that provide contracted services to local authorities and the NHS.

Health secretary Wes Streeting conceded on Thursday that some healthcare providers would be affected by the policy, which lowered the threshold at which employers start paying the tax on each employee’s salary to £5,000 from £9,100, and increased the rate by 1.2 percentage points to 15 per cent from April.

Care groups warned that the extra £600mn allocated to the sector in the Budget would be wiped out by the extra costs incurred by the tax.

The National Council for Voluntary Organisations said it estimated the changes would cost charities £1.4bn and that it was writing to the chancellor to request an exemption for the sector.

Rhidian Hughes, chief executive of VODG, a membership organisation for more than 100 disabled charities, said smaller members were reporting salary bill increases of £300,000 a year and larger ones over £3mn-£4mn.

The Cheshire-based David Lewis charity, which provides educational, residential and medical services to young people with learning disabilities, told the Financial Times estimated the Budget changes, including an increase to the minimum wage, would cost it an extra £1mn a year.

John Heritage, chief executive of David Lewis, said the changes meant the charity would have to either trim its investment plans, raise prices or give up providing some services — or a mixture of all three.

“For us, we’ve suddenly been hit with a £1mn extra cost which we haven’t budgeted for and there is zero indication of how that’s going to be covered,” he said. “That will increase the cost for local authorities of what we do. It’s a completely false economy.”

Following uncertainty over how GPs, which tend to be run as small businesses, would be hit by the policy, the chief secretary to the Treasury Darren Jones told the BBC’s Question Time show on Thursday they would also have to pay employer NI contributions.

“GP surgeries are privately owned partnerships, they’re not part of the public sector,” he said. “They will therefore have to pay.”

Ed Davey, leader of the Liberal Democrats, said: “Hammering small businesses with a tax hike is the wrong choice. It will hit people’s wages and jobs but it also risks worsening the NHS crisis by hiking costs for care providers and pushing some to the brink.”

The university sector also warned that raising employers’ NI would force institutions, many of which are already cutting back on staff in order to address sector-wide financial pressures, into further retrenchment. 

Analysis by the University and Colleges Employers’ Association found the cost of the combined changes to employers’ NI would add up to about £372mn, equivalent to 2.1 per cent of the sector’s pay bill, for 2024-25.

Raj Jethwa, UCEA chief executive, warned that institutions would face “difficult decisions” to balance their budgets as higher costs landed at a time of “falling student numbers and stagnant fee income”. 

Sir Steve West, vice-chancellor of the University of the West of England in Bristol, said the NI increase would add about £4mn to the university’s annual salary bill of £216mn at a time when it was already introducing tight cost-controls and pausing non-essential investment.

“This just adds to the pain we are already managing. Last year we cut expenditure by £16mn, this year it will be a further £20mn and we’re looking at another £22mn for 2025-26. This measure puts further jobs at risk,” he said.

Vivienne Stern, chief executive of Universities UK, the sector lobby group, said that many other universities had reported similar positions, with one large institution in the north of England predicting the NI rise would add “another 60 or 70” jobs to existing cuts.