The increase in employers’ National Insurance contributions raises the likelihood that companies might opt for undeclared cash payments to employees, according to a study commissioned by the Northern Ireland Executive’s finance department.
From April employers have had to pay
NI at 15% on salaries above £5,000, up from 13.8% on salaries above £9,100
.
That makes it more expensive for businesses to employ people.
The study by Ulster University academics, which included consultation with business groups, said this risks encouraging the “informal economy”.
“The analysis from the university’s Economic Policy Centre (EPC) indicated a higher likelihood of companies reverting to handling transactions solely on a cash-only basis,” it stated.
It added that it is “important to note this point was only expressed in a small minority of consultations”.
The primary finding of the EPC is that the increase in employers’ National Insurance will affect Northern Ireland more significantly than any other part of the United Kingdom.
This is due to Northern Ireland being an area with comparatively low wages, where the biggest relative effect of the National Insurance hike falls heavily on employers who have lower-paid workers.
The research indicated that employers in Northern Ireland were ready for an increase in the National Living Wage (the adult minimum wage), yet they faced challenges with managing the unanticipated hike in wages due to NICs, making this part of the adjustment more complicated.
The statement indicated that “Generally, employers accepted the National Living Wage increase, even though it might have been higher than what many preferred; however, this reaction is quite common among employers year after year.”
This approval acknowledges that the government raises the National Living Wage rate yearly and also stems from the fact that wages are increasingly pushed upward by market dynamics regardless.
The Finance Minister, John O’Dowd, stated that the study confirms “decisions made in Westminster are adversely affecting our business sector and voluntary organizations, along with our public finances.”
Previously, the government justified raising National Insurance contributions by stating that they needed to generate extra funds to secure the stability of public finances and tackle the NHS backlog.
- What does National Insurance entail and what changes are being introduced?
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