The biggest hit to low-wage jobs in the UK due to national insurance hikes.

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Rachael Reeves' National Insurance contribution hike will hit low-wage, labor-intensive sectors of the UK economy hardest, according to analysis. The Prime Minister may soon be forced to raise taxes again.

The Institute for Fiscal Studies said Wednesday's budget decision to raise $25 billion through higher employer national insurance contributions increased the risk of job loss for low-paid workers.

This is because most of the additional NI gains come from lowering the earnings threshold at which employers start paying contributions from 9,100 to 5,000. The NIC rate will also rise by 1.2 percentage points to 15% from April.

Lowering the threshold would increase the cost of hiring a worker in the bottom fifth of earnings by more than 4%, while it would only increase the cost of hiring a worker in the top fifth of earnings by about 1.5%, the think tank said. . .

The IFS said Reeves may need to raise taxes further in just two years to secure an additional $9 billion a year to avoid cuts to public services later in Congress.

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Reeves, who presented his first budget on Wednesday, said the $40 billion package of tax increases would lay the foundation for higher growth and better public services, particularly the NHS and schools, and ensure financial stability.

On Thursday, she acknowledged that her policies could undermine wage increases. She told the BBC that businesses would have to absorb some of the additional costs through profits, which would likely mean wage increases could be slightly smaller than they would otherwise be.

Even after historically large tax increases, the IFS said new government spending was so far ahead of schedule that Reeves would need to find at least $9 billion more each year beyond 2025-26 to avoid real cuts to some areas of public services. Later in the National Assembly.

IFS director Paul Johnson said the final increase was likely to be more than $9 billion, given the government's ambitions and the state of public services.

An analysis by the Resolution Foundation think tank reached a similar conclusion. Reeves was found to be hinting at a real cut of $10.8 billion per capita, with no budget caps, until Congress returns funding to 2015-16 levels.

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The budget's main tax increase measure, the increase in employer NICs, would not raise the same amount as the $25 billion set out in the Treasury Scorecard, according to estimates from the Office for Budget Responsibility, IFS said. This is because wages and profits are lower and taxes are lower. Net profit is approximately 16 billion won.

The IFS noted that employers in low-wage sectors would be constrained by minimum wage increases and would not be able to recoup their costs by squeezing wages over time.

The real cost of hiring minimum wage workers will rise 8% for full-time workers and 11% for part-time workers next year, the biggest increase on record, the think tank said.

IFS research economist Isaac Delestre said that not only was it worth worrying about job losses due to rising employment costs, but there was also increased incentive to shift towards hiring self-employed contractors.

Employers are warning they will face additional pressure from a 6.7% rise in the National Living Wage from April 2025 and employment law reforms to boost workers' rights.

The government's workplace reform package will cost businesses up to $5 billion a year, with the biggest impact expected on low-wage sectors such as hospitality, according to official estimates.

Overall, the combined impact of benefit cuts, employer NIC increases and excise duty changes will be felt evenly across the income distribution, according to the Resolution Foundation.

The poorest half of households will see their annual income fall by 0.8%, while the richest half will see their annual income fall by 0.6%, the think tank said on Thursday.

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Despite concerns about where the burden of tax increases would fall, Reeves received support from the IMF for his fiscal strategy. The fund said it supports medium-term deficit reduction projections achieved through sustainable revenue growth.

Reeves acknowledged his budget may require raising more revenue in the future, even after the tax burden rose to a new record 38.2% of GDP.

In an interview with Sky News she said: I will never promise to never change taxes again. That would be irresponsible. However, this is a budget that is submitted only once to the National Assembly.

Conservative shadow chancellor Jeremy Hunt said Reeves' tax hikes would represent the biggest assault on our economic competitiveness since the 1970s and would be counterproductive.

OBR chairman Richard Hughes told the BBC that the 25 billion increase in NICs would have an impact on workers. Taxing wages is bad for labor supply, he said.

Hughes noted that increased state spending over the next two years will temporarily boost GDP, but growth will return to about 1.5% by the end of the Congress.

He said this reflects the fact that the economy is operating close to maximum capacity and that some of the additional public investment financed by a new wave of borrowing will crowd out private investment.

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