Businesses count multimillion-pound cost of budget

A host of Britain’s best-known businesses have warned that jobs could be cut, hiring scaled back and prices pushed up as they absorb hundreds of millions of pounds in extra costs imposed on employers in Rachel Reeves’s autumn budget.
Allison Kirkby, the chief executive of BT, said customers could be charged more for services as the telecoms group looked to offset a £100 million hit from rising national insurance contributions in the next fiscal year.
Kirkby said: “We will look to accelerate some of our cost transformation, we will continue to pursue further workforce productivity measures and, of course, we’ll be looking at the pricing of our products and services.”
The former state monopoly employs 118,000 people and its total staff costs for the first half of this year were £2.4 billion. The headcount has been reduced by 5,000 in the past 12 months as part of an efficiency drive and it plans to reduce its workforce to between 70,000 and 90,000 people by the end of the decade.
There will also be a potential knock-on effect to companies within BT’s supply chain, which makes up 65 per cent of its costs, Simon Lowth, the chief financial officer, said, “that will be an important part of the programme to offset this particular cost headwind”.
The chancellor raised the employers’ national insurance contributions by 1.2 percentage points to 15 per cent from April and reduced the salary threshold at which employers start paying the tax from £9,100 a year to £5,000. The measure is calculated to raise £25 billion per year to help repair the public finances. Meanwhile, the minimum national wage was lifted from £11.44 to £12.21 an hour.
Simon Roberts, the boss of Sainsbury’s, warned that the increase in national insurance was expected to cost Britain’s second biggest supermarket chain an additional £140 million next financial year.
He said the grocer “will do everything we can to mitigate the impact” of the tax changes but given the industry’s 3 per cent margins “there just isn’t the level of capacity to absorb this level of unexpected cost inflation that is coming at us as fast as it is”.
Howden Joinery, the FTSE 100 supplier of kitchens to the building trade, expects that the higher national insurance contributions and the rise to the minimum wage would cost the company £18 million a year.
Other listed companies to have put figures on the cost of Labour’s budget include the housebuilder Persimmon, which anticipates a potential £15 million hit from national insurance contributions. Nichols, the drinks manufacturer behind Vimto which employs 300 people, estimated that it would add a “few hundred thousand pounds” to its labour costs.
UK Hospitality has estimated that the annual cost to the sector will be about £3.4 billion, with £1 billion of that due to the impact of the national insurance increase.
Tim Martin, the founder and chairman of Wetherspoons, the pub group, said “all hospitality businesses, we believe, plan to increase prices”. Stuart Machin, the chief executive of Marks and Spencer, said national insurance contributions were a “significant headwind”. Andy Duxbury, the chief financial officer of Persimmon, one of the UK’s biggest housebuilders, said he expected the extra cost to feed into build-cost inflation.
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Bosses of dozens of other businesses are understood to have raised their concerns in a telephone call with Jonathan Reynolds, the business secretary, this week. Rami Baitiéh, the chief executive of Morrisons, the supermarket chain, is understood to have warned of “an avalanche of costs”, while Simon Emeny, chief executive of the pubs group Fuller’s, said he would be forced to halve investment next year to £30 million.
The Bank of England, in its monetary policy report issued alongside the 25 basis-point cut to interest rates, said that it saw only a “limited” scope for consumer-facing businesses to pass on the increased costs given subdued demand across the economy.
It said: “The increase in employer NICs in the budget represents an increase in labour costs, which will initially be fully incident on businesses. But the aggregate impacts on growth and inflationary pressures in the economy will ultimately be determined by the degree to and speed with which the tax increase is transmitted into prices, wages, employment or otherwise absorbed into profit margins or productivity growth.
“In the MPC’s [monetary policy committee’s] projections, the NICs change is provisionally assumed to have a small upward impact on companies’ prices and a small downward impact on wages over the forecast period. That weakness in wages is also assumed to have a small downward impact on labour supply through reduced labour market participation.”
Shevaun Haviland, the director general of the British Chambers of Commerce, called the new tax regime for companies “a tough budget for business to swallow”.
The Treasury has been contacted for a response.
J Sainsbury: £140 millionBT: £100 millionWetherspoon: £60 millionMarks & Spencer: £60 millionFuller, Smith & Turner: £30 millionPersimmon: £15 millionHowden: £18 millionNichols: Several £100,000s