Meeting of the Parliament 18 February 2025
I will try to restrain myself to a stern look.
As I was saying, the consequences of the policy for the economy are stark. It will create risk, jeopardise jobs, drive up prices and hamper economic growth. The UK Government’s economic impact assessment confirms that the changes will result in lower employment and higher costs for businesses, with more than a million employers across the UK being affected.
At the time of the UK budget, the Office for Budget Responsibility was clear on the economic effects. It said that the changes would not only increase prices in the economy but have
“a persistent negative effect on work incentives and both labour demand and labour supply”.
A recent Scottish business monitor survey found that three quarters of businesses expect the national insurance contribution changes to significantly impact their operations in 2025. The Bank of England’s latest intelligence from this month is that businesses are reporting a material increase in total labour costs, owing to the planned increases in national insurance contributions.
The Resolution Foundation has highlighted that lowering the threshold at which employer national insurance contributions are paid will disproportionately affect lower-paid jobs. That means that sectors such as hospitality, retail and social care—which are already grappling with significant financial pressures—and those with a large number of employees will bear the heaviest costs. The hospitality industry has warned that the changes are unsustainable and will lead to business closures and job losses.
A recent market insight survey by the Scottish Licensed Trade Association reported that 75 per cent of outlets expect new employer national insurance costs to impact their staffing levels, making it even more difficult for businesses to open for their full operating hours, remain competitive and get more people into venues.
The tax hike will compound the challenges that businesses are already facing. Across the UK, employer national insurance contributions account for approximately 15 per cent of all business taxation. With the increase, the tax burden on businesses will reach its highest level in decades, which will undermine Scotland’s confidence and competitiveness in key industries. The tax hike will fundamentally change conditions for businesses and will force many of them to make impossible choices to deal with the higher tax burden. The choice will be to cut jobs, reduce working hours, cut wages or pass the higher costs on to consumers through higher prices. Many businesses will try to absorb the costs but, when they cannot, they will have to consider letting staff go. That is why the policy is a tax on jobs.
The scale of the financial strain risks creating a drag on Scotland’s economic recovery at a time when businesses should be supported to be competitive. Since the UK budget, business optimism has weakened—the British Chambers of Commerce quarterly economic survey shows that business confidence has fallen since the UK budget. The business insights and conditions survey shows that 15.4 per cent of businesses in Scotland reported taxation as a concern in January 2025—the highest rate in the time series. When business confidence is high and uncertainty is low, businesses are more likely to invest. The tax has changed business conditions, forced businesses to review their cost base and will, consequently, deter investment.
We have heard directly from businesses about the challenges that are posed by the rising cost of doing business. We took proactive steps to mitigate those pressures wherever possible using the financial levers that are available to us. Those efforts are being undermined by the UK Government’s decision to increase national insurance contributions.
The lowering of payment thresholds for employer national insurance contributions further compounds the problem, disproportionately affecting small and medium-sized enterprises. The Confederation of British Industry has been unequivocal about the damage that those changes will cause. It states that
“the hike in National Insurance Contributions alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.”
Other business voices across Scotland are raising the alarm. The Federation of Small Businesses has also warned that the increases will inevitably have a chilling effect on jobs, wages and consumer prices. With small businesses already grappling with high energy costs, supply chain disruptions and inflationary pressures, the tax increase is another blow at the very worst possible time.
The success of our businesses—large and small—underpins our economy. Their ability to grow, create jobs and provide opportunities is what sustains our communities. We cannot and will not tolerate our efforts to support Scottish businesses being consistently undermined by short-sighted decisions that are taken in London. Our approach to economic growth is long-term investment, not short-term tax grabs. We remain committed to fostering a business environment that encourages investment, innovation and expansion. The national insurance changes create uncertainty, making it harder for businesses to plan, recruit and invest in their future. If the UK Government is serious about economic growth, it must reconsider the impact of those decisions before they cause lasting damage to Scotland’s economy.
Scotland’s third sector organisations, which play a critical role in working across communities to tackle social issues, are also being impacted. The Scottish Council for Voluntary Organisations has estimated that the third sector in Scotland will face additional costs of £75 million per year because of the changes to employer national insurance contributions. The First Minister’s letter to the Chancellor of the Exchequer on 3 January, which was supported by a range of voluntary organisations, made clear our serious concern about the impact of the tax change. We called on the UK Government to ensure that our public services, voluntary organisations and communities do not suffer as a result of the change to reserved UK taxation.
Despite the welcome elements of a reset in intergovernmental relations, on this occasion, the UK Government failed to engage with the Scottish Government before implementing the changes, denying us the opportunity to advocate for Scotland’s businesses, third sector and public services. The Cabinet Secretary for Finance and Local Government will raise the issue at the finance interministerial standing committee on 27 February, but we need urgent discussions now, not weeks or months down the line. That failure to engage continues a pattern of unilateral decision making by UK Governments that disregards the realities that are faced by devolved Administrations. If we are to have a genuine partnership, it must be built on mutual respect and engagement.
The tax increase has created avoidable uncertainty for businesses and service providers alike, but the UK Government has refused to engage with us in good faith. We will continue to press the UK Government to reverse the planned increase to employer national insurance contributions and to recognise its damaging implications. We will stand up for Scotland’s businesses, public services and communities, demanding the support that they deserve.
I move,
That the Parliament recognises the significant adverse impacts of the UK Government’s intended changes to employer national insurance contributions (ENICs) on Scotland’s businesses, third sector, public services and wider economy; believes that the impacts are likely to result in higher costs, job losses, increased prices and cause some charities and businesses to close altogether; notes the potential disproportionate impact of the changes on consumer-facing sectors of Scotland’s economy, such as retail, tourism and hospitality businesses, organisations providing social care and third sector organisations commissioned to provide public services; agrees with the significant concerns expressed by 50 organisations in Scotland, including COSLA and the STUC, who, along with the Scottish Government, wrote to the UK Government describing the risk to the vital services that they provide due to these additional costs, and calls on the UK Government to reverse this decision and not raise ENICs as planned in April 2025.