There are always triumphs and setbacks in life and business, but will the post-budget world amount to anything more than the cyclical, ebb and flow we come to expect from new government? Now the dust has settled I look at what the impact of the raise in NI will be.

UK Hospitality has estimated that the rise in national insurance (NI) by 1.2% to 15%, coupled with a reduction in the threshold in which companies start paying NI from £91,00 to £5,000, will cost the hospitality sector alone £3.4bn.

For many businesses, these new NI requirements represent a big increase in costs. Employers will have to pay an additional £770 in NICs for each minimum wage worker, or an extra £900 for each employee on median earnings, adding up quickly for businesses with large workforces.

Two clear things came out of the budget:

1. The Treasury low-balled the nation to better manage the negative impact of tax rises to present, what most of the City seemingly think, was a somewhat reasonable budget; and
2. The realisation that some government, at some time, must address the deficit and invest in our public services and infrastructure.

Somewhat unfortunately this has also come at a time when our American friends have just voted in a certain Donald Trump for a second term. With the promise of ending war in Ukraine – this has put pressure on the government to increase our defence budget which in turn create more of a funding requirement. 

That said, the one thing we should all know by now, is that uncertainty and the inability to predict exactly what will happen in the geo-political and domestic world are now the new norm.

The Times recently highlighted the concerns the hospitality sector have along with some headline numbers as to what the cost to some of the most well-known businesses would be:

Estimated impact of budget measures

1. J Sainsbury - £140m
2. BT - £100m
3. Wetherspoon - £60m
4. Marks & Spencer - £60m
5. Fuller, Smith & Turner - £30m
6. Howden Insurance - £18m
7. Persimmon Homes - £15m

Source: The Times and The Sunday Times

Further analysis from Deutsche Bank has suggested that the NI hike will cost at least 100,000 jobs in the UK market, with Andrew Higginson, Chair of the British Retail Consortium, warning that a jump in costs would be too much for the retail industry to shoulder.

In fact, Peel Hunt estimates that retail firms will see a pre-tax profit fall on average of 7.5%. 

One further point, on the seeming losers, are charities and care homes. A good friend of mine is a senior figure within one of the largest national mental health charities. The rise in NI will cost them £750k a year which will eat into very limited reserves and then impact the ability to provide life saving services and likely involve cutting jobs.

This is a pretty gloomy picture indeed, so where, pray tell, is the prosperity in all of this? Firstly, there should be the best part of £25bn up for grabs that otherwise does not exist. 

The main beneficiary, by some distance, is health care and public services, and therefore the British public itself. The government are largely ripping the proverbial band aid off, in what has become the desperately protracted issue of the NHS overhaul, investment, and waiting time review. This should be celebrated as it is an issue no previous government has wanted to truly address. 

There are other positives such as salary sacrifice, being the redirection of pre-tax salary to non-cash benefits, will become far more attractive. So, employees can save more for retirement and in turn the employer has a reduced NI cost on that element of the wage run. 

The truth is, beyond the much-needed investment into our health and social care system, there is going to be a difficult few years ahead for a lot of businesses. The simple benefit to burden ratio could easily suggest that today’s pain is tomorrow’s growth. At some point we need to reinvest and nothing worthwhile usually comes easy. 

But with the NI hike likely having consequences on wage freezes, job losses, stagnation in economic growth and reduction in employer to employee benefits – it’s a hard pill to swallow.