18 April 2002
The increase in employers' National Insurance contributions from next year could affect the competitiveness of large UK corporates, particularly those that are relatively labour intensive such as the retail and service sectors. In the manufacturing sector many companies also face pressure from the strength of the pound, and this could compound into a greater degree of impact on employment.
The perception is that, at a time when many companies have been working extremely hard to remain competitive, the move to increase the cost of employing staff will take them a step back. Following this move to increase the cost to business, there will be even more emphasis on the need for manufacturing and other companies to continue to control costs through improved techniques and business process improvement.
In today's highly competitive climate, such an increase in labour costs could lead to three possible outcomes. In the first instance, companies may reduce their workforce. Secondly, they may reduce the number of people they would employ in the medium and long term. And thirdly, they may increasingly rely on a flexible work force, either through the use of more part-time staff and/or more temporary staff to dilute the impact of National Insurance contributions.
Richard Mallett, CIMA's Director of Technical Development, said: 'Although large companies have been given a greater incentive to invest in R&D, for many labour intensive companies, there is a perception that these gains have been nullified by the increased National Insurance contributions for employers. As a result, the number of jobs and nature of the labour market may change, particularly if there is a trend over time towards increasing the tax burden on business.'
If you would like more information please contact Lottie Muir
Phone: +44 (0)20 8849 2407
Email: lottie.muir@cimaglobal.com
