Barclays warns tax rise will hit workers' living standards

Business leaders accuse government of betraying the nation’

- MILLIE COOKE

Rachel Reeves’s increase in employer national insurance contributions (NICs) will hit workers’ living standards, Barclays has warned, amid growing backlash over the tax hike.

Economists at the bank said the policy would cause real incomes to take a hit, as companies pass on the cost of the levy through lower pay rises and higher prices. This, they said, will leave people feeling poorer as prices rise faster than wages.

Despite a manifesto pledge not to increase taxes for working people – including NICs, income tax and VAT – the chancellor increased employers’ NICs from 13.8 per cent to 15 per cent at the Budget. She also reduced the threshold at which employers start paying the tax, slashing it from £9,100 per year to £5,000.

In a note to clients seen by The Daily Telegraph, economists at the bank said: “We expect the additional costs implied by changes to employer NICs to lead to lower real incomes, through a combination of higher inflation and lower wages.” Meanwhile, the prime minister has been urged to take “decisive action” to restore business confidence following the decision to increase employer NICs – something business groups have described as a “betrayal”.

The chancellor argued that the policy, which is expected to raise more than £25bn for the Treasury, does not breach Labour’s manifesto commitment because it does not show up on employees’ payslips. However, businesses have urged the government to change course, warning that they will be forced to “tighten their belts” as a result of the policy and claiming that some are facing a sevenfold rise in their bills as a result.