NICs Increase: Impact on Economic Growth

The Government have taken difficult decisions to repair the public finances, fund public services and restore economic stability. The Office for Budget Responsibility predicts that the employer national insurance contribution changes “will reduce the level of potential output by 0.1 per cent at the forecast horizon”. It also predicts that growth will pick up next year and that living standards will rise faster during this Parliament than during the last, and in the long term it expects the autumn Budget policies, if sustained, to increase the size of the economy permanently.

My constituent Alison runs Stepping Stones nursery school, which has been operating in my constituency for 30 years, offering wraparound care to busy families. The increase in employers’ national insurance contributions alone will cost it £16,000 a year and it is still struggling with an increase in utility costs, while other nurseries in the area are also struggling and, indeed, closing. Headmasters, a hairdresser in Walton, is struggling with £15,000 of extra costs, owing primarily to this tax rise. Can the Minister explain to businesses in Esher and Walton how the Government’s national insurance policy will deliver growth or higher living standards, given that it seems to be doing neither?

The Government’s decision to increase employer national insurance contributions was one of the toughest decisions that we took at the Budget, but it was necessary to restore stability to the public finances. It is only on the basis of having stable public finances and fiscal responsibility that we can boost the investment and growth that will make people across Britain better off.

As the poor growth figures show, the Chancellor’s jobs tax is really hurting businesses, not least in our hospitality sector. In my constituency, pubs such as the Eel Pie and the King’s Head, as well as the family-run restaurant Shambles, are really struggling with soaring costs and putting off hiring people. If the Chancellor will not reverse her jobs tax, will she at the very least consider extending the current 75% business rates relief for hospitality until the new system that she has announced is in place?

The hon. Member speaks about business rates relief. We have to remember that the business rates relief for retail, hospitality and leisure was due to end entirely in April 2025 under the plans we inherited from the Conservative party. Despite the toughest of contexts, we decided to extend the 40% relief for another year before the permanently lower rates for retail, hospitality and leisure come in from April 2026.

Does the Minister agree that planning reform is essential for higher growth and lower taxes? Is he, like me, concerned that the anti-growth Opposition we see before us in this House will vote against the forthcoming planning and infrastructure Bill, which is possibly the most significant piece of pro-growth legislation that this Parliament will see in decades?

My hon. Friend is absolutely right about the centrality of planning reform to getting the economy growing. Indeed, one of the first actions that the Chancellor announced on taking office was to scrap the ban on onshore wind turbines in the planning system, which had been holding back our clean energy transition. I hope that some Opposition Members might take the opportunity during today’s questions to confirm that they will support our reforms to the planning system, because they are indeed vital to growth in this country.

Does the Minister agree that it is in the interests of business to see waiting lists in the NHS reduced, roads repaired and the public finances fixed? Does he agree that if Opposition parties do not agree with Labour’s plans, they should set out how they would pay for such improvements?

My hon. Friend is absolutely right that stability in the public finances is crucial to ensure that we boost investment and growth across the country. He is also right to point out that having public services back on their feet, after years of decline under the Conservative party in government, is essential not only to making people in this country healthier, more able to get around and better off, but to getting our economy growing, because it is on that basis that businesses will invest.

I call the shadow Minister.

Even before Labour’s jobs tax comes into force, we can see the damage that it is doing. Three quarters of a million jobs in hospitality will be subject to employer national insurance for the first time, costing £1 billion. Given that major hospitality and retail businesses are warning that lower-paid and part-time workers will suffer most, will the Chancellor think again? Can the Minister at least commit that there will be no further increases during this Parliament?

The businesses to which the hon. Gentleman refers, like businesses in all sectors of the economy, benefit from the stability that this Government have brought to the economy. He wants to talk about unemployment and the rate of jobs. We recognise that making changes to employer national insurance contributions was a tough decision that will have consequences, but the unemployment rate will fall to 4.1% next year and remain low until 2029. When taken together, the Budget measures mean that the employment level in this country will increase from 33.1 million in 2024 to 34.3 million in 2029.

I call the Liberal Democrat spokesperson.

Health and wealth are two sides of the same coin, and we will not get economic growth without a healthy population. But as a result of the national insurance contribution changes, the Care Provider Alliance reports that 73% of social care providers will have to refuse new care packages from local authorities or the NHS, and that 57% will have to hand back existing contracts. What assurances can the Government provide to the huge number of people who are very scared that they will have to go without care and see their lives deteriorate?

The hon. Lady makes an important point, but it is also important to point out that tough decisions on taxation must be made to fund the very services she is keen to support. On her specific point about these pressures, we announced at the provisional local government settlement a further £200 million for adult and children’s social care to support authorities in delivering key services. This will be allocated through the social care grant, which will bring the total increase in this grant in 2025-26 to £880 million, meaning that up to £3.7 billion of additional funding will be provided to social care authorities in 2025-26.

Ministers will be aware of analysis from the Nuffield Trust showing that that additional grant is being dwarfed by the additional costs that the Government are introducing. On the great British high street, we know that our high streets are beautiful features of our cities, market towns and villages, but hospitality, retail, beauty and other service sectors are saying that the combination of national insurance and other changes will be a real hammer blow. If high street shops start to close, that is bad for economic growth and bad for confidence. What mechanisms will Ministers put in place to monitor the impact of the national insurance contributions changes on the vibrancy and resilience of our high streets?

All measures in the Budget were of course analysed by the Treasury and the Office for Budget Responsibility ahead of their announcement, and we keep in constant contact with industry representatives to see how policies are working in practice. I draw her attention to my earlier remarks to her hon. Friend the Member for Twickenham (Munira Wilson) about our business rates reform, which is a vital ask from the retail, hospitality and leisure sector. After years of chopping and changing from the Conservative party—changing reliefs from one year to the next, and offering no stability whatever to people in that sector—we are introducing permanently lower rates for the retail, hospitality and leisure sector from April 2026, and avoiding the complete end of relief that the Conservative party left in the in-tray when we arrived in office.