Is the backlash against Reeves’s national insurance hike justified?

It should probably come as no surprise that what the chancellor, Rachel Reeves, once described as “a tax on jobs” has turned out to be... a tax on jobs. Her decision in the Budget to raise up to £25bn from an increase in employers’ national insurance contributions (NICs) has obviously proved controversial.

A heated but largely inconclusive debate has surrounded the question of whether the move violates Labour’s manifesto promise not to raise taxes for “working people”. But now the change is coming under sustained attack from a number of sectors with tight profit margins, where the employment of lower-paid and/or part-time workers means an immediately higher tax bill for the employers.

In particular, the “secondary threshold” – the level at which employers become liable to pay national insurance on each employee’s salary – will come down from £9,100 per year to £5,000 per year.

This is presenting notable difficulties in the health sector...

GP surgeries, pharmacists, and those who run private care homes and hospices are all set to be badly affected by the changes. Though there are exceptions, and some who work in primary healthcare and social care are well remunerated, the sectors are under some financial pressure, and employ many people who will now be more expensive to keep on. In some cases, the situation could be worsened by increases to the minimum wage, and by the costs of dealing with new workers’ rights under proposed legislation.

Employers say that they will have no alternative but to slow or freeze recruitment, lay people off, and, in the case of the self-employed or partnership GP surgeries, hand their NHS contracts back to the government – at a time when primary care is in crisis. The hospices are in an especially precarious position: they get one-third of their income from the NHS, but rely on charitable donations for the rest – a far less predictable source of funding.

Care England, a trade body for providers of adult social care, says its members are in “unprecedented danger” and that the closure of services that are no longer viable is likely.

Not really, because it is only an extra £5,000 per year per employer at most.

No. Larger employers can usually absorb increased costs and/or pass them on, either through higher prices or via lower wage settlements. But these sectors are already suffering from severe labour shortages and understaffing, and they may not be able to charge the NHS or local authorities higher fees.

GPS, care homes, pharmacies and care homes are private or third-sector concerns. They are highly dependent on the NHS, and in many ways an extension of it, but are treated differently in relation to NICs. The health secretary, Wes Streeting, has confirmed that the NHS will be refunded for the rise in national insurance contributions – but care homes, who so often take on discharged patients, will not.

Reeves did boost that, but it’s not immediately available to deal with the wages bill – or generous enough. Thus, the extra £600m provided to local authorities for adults’ and children's social care would be “wiped off instantly” by increased staffing costs, according to those businesses involved. GPs will get some £100m to cover upgrades to premises at 200 practices – but this cash is ring-fenced.

It won’t change the policy. Darren Jones, the chief secretary to the Treasury, is adamant: “Non-public-sector organisations will not be exempt: they will have to pay employer national insurance contributions in the same way that they normally do, and therefore at the higher rate.”

The Liberal Democrats, who have made care a focus of their campaigning, want the government to exempt the social care sector from the rise in national insurance. Victoria Atkins, shadow health secretary, hasn’t gone so far for the Conservatives: “Labour’s jobs tax will clobber GP practices, social care providers, hospices, pharmacies and dental practices. This is economically illiterate and shovels more costs onto services. Labour needs to go back to the drawing board and come up with meaningful reforms for health and care services.”