The cost of employing someone on the minimum wage will hit a record high this year as Labour’s tax raid pushes up costs for businesses, a think-tank has warned.
Analysis from the Centre for Policy Studies revealed that Chancellor Rachel Reeves’s decision to raise employer National Insurance contributions and implement an inflation-busting increase in the minimum wage meant the cost to a business of employing someone full-time in low-paid work will be £2,367 more expensive than it was in 2024.
It also highlighted that the amount of national insurance a business would need to pay for each full-time employee on minimum wage would rocket by nearly 60 per cent this year to £2,583.
Ms Reeves declared in her October Budget that employers would pay a 15 per cent NI rate on staff salaries exceeding £5,000 from April, rather than the current 13.8 per cent levy on wages above £9,100.
She also said the National Living Wage, the legal minimum, would go up by 77p to £12.21 per hour.
But the CPS warned the soaring cost of employing minimum wage staff would have an ‘obvious impact’ on hiring decisions, with many firms scaling back plans to create jobs.
As a result, people in low-paid work as well as the unemployed seeking to re-enter the workforce would find their opportunities restricted.
‘Labour claims to understand the importance of growth and to have made it a priority,’ said CPS director Robert Colvile.
Rachel Reeves Reeves said in her October Budget that employers would pay a 15 per cent NI rate on staff salaries exceeding £5,000 from April
NICs is charged at different rates for employers, employees and the self-employed
‘But it was clear from the moment of the Budget that taxing jobs and work would damage the economy.’
He added: ‘The changes to employer’s National Insurance and the increases in the minimum wage make it disproportionately more expensive to employ those at the lower end of the wage scale.’
It is the latest warning to the Chancellor that her planned tax raid will force businesses to cut jobs and potentially close down as they buckle under their additional cost burden imposed by HM Treasury.
Retail firms, pubs and bars are expected to be hardest hit given they employ large numbers of staff on the minimum wage.
The Bank of England has also joined others in warning the measures will push up prices and potentially fuel inflation, meaning interest rates could stay higher for longer.
It follows a bleak forecast yesterday from the Centre for Retail Research which estimated that 17,350 shops will shut down in 2025 — the highest figure since it began compiling the data in 2015.
Shrinking job opportunities as a result of the tax raid also threatens to undermine the government’s plans to boost living standards and economic growth.