### Employers Face Tax Hikes in New Budget, Threatening Wage Growth

In a significant change outlined in the latest Budget, employers are bracing for heavy financial ramifications due to substantial tax hikes that could potentially stifle wage growth. The government's £40bn tax increase includes a notable rise in National Insurance rates for employers and a lower threshold for contributions, sparking concerns that firms will react by limiting pay raises.

Influential think tanks, the government's independent forecaster, and Chancellor Rachel Reeves have all anticipated that businesses will try to offset these costs by cutting back on wage growth. "Businesses will have to absorb some of this through profits, and it's likely to mean that wage increases might be slightly less than they otherwise would have been," Reeves explained in a statement to the BBC.

James Smith, Research Director at the Resolution Foundation, echoed these sentiments, warning that although immediate impacts might not be visible in paychecks, long-term effects are inevitable. "This is definitely a tax on working people," Smith emphasized, highlighting the broader implications for household earnings.

Further compounding the issue, other Budget measures aimed at increasing spending on public services are expected to elevate inflation in the short term, potentially delaying interest rate cuts. This scenario threatens to further erode consumers' spending power.

Despite the growing concerns, the government maintains its commitment to fostering economic growth, promising that citizens will have more disposable income by the end of the parliamentary term. However, the Labour Party's general election manifesto pledge to refrain from taxing "working people"—including explicit commitments against raising VAT, National Insurance, or income tax—has come under scrutiny. Critics argue that the employer National Insurance Contributions (NICs) rise betrays this promise, a claim the government strongly denies.

The Office for Budget Responsibility (OBR) forecasts that by 2026-27, about 76% of the total cost of the NICs increase will be shifted onto employees through reduced pay growth and higher prices. The OBR anticipates modest growth in average household income during this period, although it will be slightly quicker than the 0.3% annual increase observed between 2019 and 2024.

Long-term projections by the Resolution Foundation reveal that by 2028, real weekly wages, adjusted for inflation, will have grown by a meager £13 over two decades. In parallel, the Institute for Fiscal Studies (IFS) warns that the NICs hike will disproportionately impact larger firms employing low-wage workers, potentially reducing the availability of minimum wage roles and raising substantially less revenue than the projected £25bn.

IFS Director Paul Johnson criticized the Budget, predicting future tax increases and additional spending will be necessary unless unexpected economic growth occurs. He accused the Chancellor of manipulating fiscal calculations by indicating unrealistically low future spending increases.

Economic forecasts from the OBR predict an initial boost in UK growth over the next two years, followed by a slowdown resulting from Budget-induced price and interest rate rises. The Resolution Foundation cautioned that high initial public service spending will lead to tough decisions in the upcoming Spring Spending Review, with little financial flexibility remaining, leaving room for possible further tax increases in response to even minor economic downturns.