Sunak Faces Fresh Pressure to Scrap Rise in U.K. Payroll Tax

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A planned 12 billion-pound ($16.1 billion) increase in U.K. payroll taxes from April will cost jobs and should be scrapped, one of the country's biggest employer groups said.

Make UK, which represents the manufacturing industry, said pressing ahead with the rise in national insurance contributions is “illogical and ill-timed” in the face of soaring energy costs.

The intervention Tuesday piles pressure on Chancellor Rishi Sunak to reverse his plans. The CBI, the largest business lobby, and the Federation of Small Businesses have both warned that the tax hike risks stunting growth by worsening an escalating cost of living crisis. The British Chambers of Commerce has suggested delaying move.

The Make UK survey of 282 members found that 60.3% will cut back recruitment as a result of the tax and 71.5% will pass the cost on to customers, adding to already severe inflationary shock.

The levy is intended to help the National Health Service clear a backlog of treatments, and eventually fund the growing cost of social care for the elderly and vulnerable. The Institute for Fiscal Studies estimates that employers will pay 5.6 billion pounds of the tax hike, with the rest falling on workers.

Sunak and Prime Minister Boris Johnson have said they are committed to the tax.

A separate survey by the Institute of Directors released on Monday found that payroll taxes are now the second-biggest concern for business, behind the energy-price surge but ahead of coronavirus for the first time since the pandemic struck in early 2020.

The IoD's monthly economic confidence index revealed a sharp rise in inflation expectations, with 31% of 669 respondents expecting consumer prices to be increasing at over 6% at the end of 2022, compared with 18% of respondents a month ago.

Doubts Growing

It suggests businesses are becoming less convinced that higher inflation will prove transitory as firms come under mounting pressure to pass on soaring input costs. According to the IoD survey, 66% of organizations questioned now expect wages to rise in the next year.

“Most of our survey responses were given before the situation in Ukraine deteriorated, so any impact from the conflict on the U.K. business operating environment will not come through until our March results,” said IoD Chief Economist Kitty Ussher.

The inflationary threat was underscored by Make UK's survey. Over 54% of companies reported a major increase in the cost of raw materials and more than 37% saw a major increase in the cost of energy this month.