Businesses cutting jobs and lowering wages not surprising, but should be wake-up call for government

The Bank of England’s latest Decision Maker Panel (DMP) survey of chief financial officers at UK businesses asked firms about changes they made on the back of employer National Insurance Contribution increases in April.

It found 66% of firms said they had lowered their profit margins, with 46% reducing employment and 20% paying lower wages.

Our view: By Laura Purkess, Personal Finance Expert at Investing Insiders

“It makes sense that cost increases will force businesses to look for other ways to cut costs, and many smaller businesses warned that a national insurance hike would result in them having to reduce their overheads, but these warnings were dismissed as scaremongering.

While there may not have been the mass redundancies that some suggested could happen, businesses have instead been cutting down on hiring, stalling pay rises, or have simply not replaced people who have left. This was eventually going to show up in the numbers.

Firms are now also cutting profit margins, which could mean even less room to hire, promote or increase pay in future.

The business rates double-whammy next year could be yet another blow for small businesses, who have less breathing space than larger firms to ride out rising costs.

The government urgently needs to prioritise support for these businesses – or at least ensure any new policies do not continue to hit their profit margins – to avoid stifling growth even further.

On the consumer side – while the government has pledged not to raise taxes on workers, it needs to remember that tax rises on businesses are still ultimately hitting working families, as it’s workers who suffer from fewer employment opportunities and lower wages as businesses look to cut costs.

Respondents to the BoE’s survey also said their businesses were increasing prices to combat the NI hike, which will also end up hitting working people’s wallets.

With inflation running high at 3.8% and mortgage rates still well above three years ago, households desperately need wages to be rising and prices to be falling, not the other way around.

The longer-term impact of stagnant wages and lower employment is a hit to people’s savings, which could prevent them from achieving goals like buying a home.

It could also end up hurting people’s pension savings, at a time when the government is already concerned that millions of people are undersaving for retirement.

People need to actually have cash to save in order to put money aside for retirement, and previous studies have shown that pensions are often one of the first things to go if people are trying to free up cash in their monthly pay packets.

We need to see more policies aimed at promoting growth rather than stifling it, as this will benefit the economy, small businesses and working people.”