The Labour government’s recent increase in employers’ National Insurance contributions has dampened business confidence and raised concerns about economic growth, Rupert Soames, chair of the Confederation of British Industry (CBI), said Monday.

National Insurance Changes and Business Impact

In last year’s October budget, Chancellor of the Exchequer Rachel Reeves announced a rise in employers’ National Insurance contributions from 13.8% to 15%, aiming to fill a £22 billion ($26.7 billion) shortfall in government finances. According to HM Treasury, the change is expected to generate £25.7 billion annually by the end of the decade.

Speaking on BBC Radio 4’s Today program, Soames criticized the move, saying it "bruised" businesses and eroded trust. "The chancellor told us at the time of the budget that there was an unexpected hole of about £22 billion in the government finances, and business was going to have to fill it," he said.

Inflation and Employment Concerns

The CBI expects the tax hike to fuel inflation and slow economic growth. Soames warned that businesses may respond by reducing hiring and laying off employees, especially as the employment rights bill is set to add more regulatory pressures.

"We're going to have a lower growth rate, but also, because of things like the employment rights bill coming along, you're going to find people laying people off and less likely to employ," Soames explained.

The National Insurance increase, set to take effect in April, comes amid growing speculation that market pressures on government borrowing could lead to further fiscal adjustments.

Industry Skepticism Toward Government

Soames expressed concerns about the government’s approach to managing economic challenges, saying, "The government has set out to fill this black hole but has created another hole in the confidence and trust that business has in government."

The business community’s unease adds to the challenges facing the Labour government as it balances fiscal policy with efforts to maintain economic growth and stability.