Prices could increase and staff working hours fall as the rise in employer national insurance contributions (NICs) comes into force on Sunday, ministers have been warned.
The rate of employer NICs will go up by 1.2 percentage points from 13.8% to 15%, and the payments will start when an employee earns £5,000, down from the previous level of £9,100.
The tax increase comes as businesses are also dealing with an 6.7% rise in the minimum wage which came into force last week.
The Conservatives have labelled the change a “jobs tax” while the boss of a hospitality industry group has said the move will have a negative impact on job creation.
Kate Nicholls, chief executive of UKHospitality, said: “The increases to employer national insurance contributions are going to hit businesses and workers right across the UK.
“The impacts will be stark, with hours for staff reduced, trading hours shortened, prices increased and, in the worst case scenario, jobs lost.
“These damaging rises not only hit cherished hospitality venues and communities but the Government’s ambition to get people back into work. It needs sectors like hospitality to create the jobs to get people out of the welfare system but these tax rises will have the opposite effect on job creation.”
Ms Reeves said at last year’s Budget that the move would raise £25 billion per year by 2029, and that she did not “take this decision lightly”.
The Conservatives have accused the Government of “slamming businesses with a punishing jobs tax”.
Pointing also to the tariffs unveiled by US president Donald Trump, shadow business and trade secretary Andrew Griffith said: “British firms are already on their knees — now Labour delivers a one-two punch that could flatten them.
“They don’t understand that it’s business, not big government, that drives growth. If they don’t reverse course fast, working people will pay the price.”
Sir Keir Starmer acknowledged earlier this week that the cost-of-living crisis is ongoing and people are feeling the pressure of rising household bills but pointed to the minimum wage increase.
The start of April also saw hikes in council tax and energy bills for households.
He told Sky News: “I think for most people, they would say the cost-of-living crisis is ongoing, and they feel the pressure financially.
“That’s why it’s so important we make good on our pledge that people would feel better off and the national living wage going up today by an average of £1,400 is going to affect millions of people, so in their pay packet this month, and obviously for months to come, they will now be getting more money.”
