Revealed: families £3,500 worse off after labour’s jobs tax bombshell

New bombshell analysis by the Conservatives has revealed working families will be £3,536 worse off over the course of this Parliament, because of Labour's National Insurance Jobs Tax, which comes into effect this Sunday [6^th April]. The new analysis looks at figures from the independent Office for Budget Responsibility (OBR) which shows the majority of the employer National Insurance Tax rise will be passed on to workers in lower real wages.

The £25 billion hike will slash salaries, punish businesses for hiring part time workers, and heap costs onto already struggling businesses. It has been met with widespread consternation by business leaders, warning they will be cutting back on investment and recruitment as a direct result of this policy. Businesses are already laying off staff, and manufacturing has fallen. It is no wonder that less than a quarter of businesses that backed Labour at the election are still backing them with one signatory saying they felt ‘stupid' and ‘duped'. Almost two-thirds of City bosses expect lower profits, higher prices, and job cuts, with more than a third warning of wage reductions. Labour's new employment rights bill could make matters even worse, further choking job creation and growth.

The Conservatives have previously called for exemptions for essential frontline services, like GP surgeries, children's hospices and nurseries. But Labour repeatedly voted against these exemptions, meaning dying children, patients and vulnerable parents will see a reduced service because of Keir Starmer's jobs tax. Other estimates show that schools could lose teachers and other public services will need to be cut as a result of the Jobs Tax.

Because Labour did not correct course at the Emergency Budget, Britain is facing lower growth, higher inflation, higher unemployment, shrinking wages and reduced living standards. All because of Labour's political choices which have left our economy more vulnerable, particularly in the face of American tariffs.

It comes on top of household bills rising by over £1,000 a year because of Labour's decisions. Alongside the 10 million pensioners who lost their winter fuel payment, families will now have less money in their pockets to cope with Labour's economic incompetence.

Kemi Badenoch MP, Leader of the Opposition, said:

“Rachel Reeves has gambled with the economy leaving us dangerously vulnerable to American tariffs. Labour's unprecedented borrowing spree and record levels of tax means she has pulled the handbrake on economic growth.

“The Prime Minister might think this is all just pocket money, but Britain's working families will certainly notice the £3500 Labour ministers have cost them.

“Labour didn't have a plan and now they have snatched winter fuel payments from pensioners, introduced emergency welfare cuts, and from this weekend will be hiking taxes on work through their Jobs Tax.”

Mel Stride MP, Shadow Chancellor of the Exchequer, said:

“Labour's war on business has become a war on working people. Now we know exactly how much hardworking Brits are set to lose out on thanks to Labour's Jobs Tax.

“Before the election, the Labour Chancellor promised not to raise people's taxes - including National Insurance. Rachel Reeves has broken that promise. It means lower wages, higher prices and job cuts. Labour don't understand business and we are all paying the price.

“Labour's Jobs Tax will pick the pockets of working people. It is not too late for Keir Starmer and Rachel Reeves to think again before this reckless tax comes in on Sunday.”

ENDS

Notes to Editors

COST OF JOBS TAX PER HOUSEHOLD IN LOST WAGES 

• OBR sets out firms would pass on the costs of the Jobs Tax to workers. The OBR sets out this would be 60 per cent on 'lower wages' and 'higher prices' in 2025-26 - we have assumed half (30 per cent) would fall on wages - and thereafter 76 per cent on wages in future years. Page 74 of the OBR EFO March 2025 sets out: ‘In 2025-26, the year in which the tax change is introduced, we assumed firms pass on 60 per cent of the higher costs to workers and consumers, via lower nominal wage increases and higher prices, with the remaining 40 per cent absorbed by the employer in lower post-tax profits. Thereafter, we assumed, based on demand and supply elasticities for labour, that 76 per cent of the total cost is passed through to employees via lower real wages, leaving 24 per cent of the cost to affect profits, and leading to a 50,000 downgrade to employment in average-hours-equivalent terms by 2029-30. Of the long-run passthrough of this cost to employees' real wages, we assumed four-fifths comes through lower nominal wages and one-fifth via higher prices.' (OBR, Economic and Fiscal Outlook, p.74, 6 March 2025, link). 

• OBR warned of a ‘substantial reduction in wages' as a result of the Jobs Tax. ‘Most surveys do point to a substantial reduction in nominal wages relative to what would otherwise have occurred, including, in particular, the Bank of England's Agents' pay survey and Brightmine's Pay Trends report' (OBR, Economic and Fiscal Outlook, p.75, 6 March 2025, link). 

• OBR have set out that the impact of the Jobs Tax could be larger than their model. ‘There is a risk that responses via prices and employment are larger than is currently assumed in our forecast.' (OBR, Economic and Fiscal Outlook, p.75, 6 March 2025, link). 

Methodology 

Our methodology takes the NI Increase tax take from the Autumn Budget 2024, and deducts the compensation set out but the government.

The OBR's March EFO 2025 sets out that the impact of the Jobs Tax in 2025-26 would be passed through ‘via lower nominal wage increases and higher prices' at a rate of 60 per cent. To be conservative our model applies a 30 per cent pass through in the first year (assuming 30 per cent is passed to lower nominal wage increase and 30 per cent to higher prices). For future years (2026-27 onwards) we apply the OBR's rate that ‘76 per cent of the total cost [of the Jobs Tax] is passed through to employees via lower real wages'.  

We then divide the total proportion of the NICs bill passed through to wages by the number of working households which is 18.6 million. 

• Labour causes household bills to soar by over £1,000 a year from Tuesday 1^st April (Daily Mail, 29 March 2025, link)
   
• Less than a quarter of businesses that backed Labour at the election are still backing them with one signatory saying they felt ‘stupid' and ‘duped'. Of the 121 businesses that signed a letter supporting Labour ahead of the general election, just 28 remained supportive, equivalent to just 23 per cent. One signatory said: ‘I signed it, I was asked twice to sign it and I do feel stupid. We were lied to on that, they said they were pro business and they said they had changed' (CITY A.M., 10 December 2024, link).

• The Bank of England's survey of Chief Financial Officers shows the majority expect lower profit margins, higher prices and lower employment, with over a third warning of lower wages. Following the Budget, the Bank of England's survey of Chief Financial Officers shows that 59 per cent of firms expect  lower profit margins, 54 per cent expect to raise prices, 54 per cent expect lower employment and 38 per cent expect to pay lower wages than they otherwise would have done (Bank of England, Monthly Decision Maker Panel data - November 2024, 5 December 2024, link).

• The London Chamber of Commerce and Industry, has found that one in four business leaders are not confident that the Government will deliver growth. The London Chamber of Commerce and Industry found in a survey of members that 81 per cent of business leaders are not confident the Government will listen to and address concerns from the business community, and 77 per cent were not confident that the Government will deliver on its commitment to economic growth (LCCI, Press Release, 2 December 2024, link).

• Over 80 business leaders wrote to the Chancellor warning they faced an extra £7 billion of costs due to the Budget which will ‘increase inflation, slow pay growth, cause shop closures, and reduce jobs'. The British Retail Consortium wrote to the Chancellor with 80 business signatories including Aldi, Amazon, and Tesco warning that following the Budget ‘for any retailer, large or small, it will not be possible to absorb such significant cost increases over such a short timescale. The effect will be to increase inflation, slow pay growth, cause shop closures, and reduce jobs, especially at the entry level' (BRC, Letter to the Chancellor, 18 November 2024, link).

• More than 200 leading restaurant, pub and hotel companies, including Stonegate, Greene King and Wetherspoons wrote to the Chancellor warning the Budget will force companies to cut jobs and reconsider investment. The letter said: ‘Businesses would be reluctantly forced to raise prices by 6-8 per cent, 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' (UK Hospitality, Press Release, 10 November 2024, link).

• 632,756 UK businesses are in ‘significant' financial distress, up a third year on year, with the Chairman of Begbies Traynor blaming the Budget and the Employment Rights Bill. 632,756 UK businesses are in ‘significant' financial distress, up 5.1% on the prior quarter (Q2 2024: 601,950) and 32.3% higher than Q3 2023 (478,176). Begbies Traynor Chairman Ric Traynor said the Budget and the Employment Rights Bill were creating difficult headwinds for business (Begbies Traynor Group, Press Release, 18 November 2024, link).

• The Institute of Directors (IOD) economic confidence index fell for the fourth month running to its second lowest reading ever, taking it close to its record low which was at the height of the pandemic. Economic confidence is at its second lowest level since the index was created in 2016 according to the IOD, with investment intentions, headcount expectations, export intentions, revenue and wage expectations all down (Institute of Directors, Economic Confidence Index, 1 December 2024, link).

• The number of businesses closing increased by 64 per cent following the Budget. According to The Gazette, 1,022 businesses closed in the week following the Budget, an increase of 64 per cent year on year (Bloomberg UK, accessed 11 November 2024, link)