Businesses have warned that the tax rises announced in the Budget would only deliver “pain” and leave employers with less cash to grant pay rises and create new jobs.

Chancellor Rachel Reeves has decided that businesses will bear the brunt of her total £40bn tax rise by raising the national insurance rate and reducing the threshold at which employers start paying it.

It means more than half of the tax rises in the Budget will be paid by employers, with the increase in the amount they pay into National Insurance from workers’ wages generating £25 billion a year.

Reeves said increasing national insurance was “difficult” but a good choice for funding public services.

Although there have been some exemptions or reliefs for smaller businesses, the increase in national insurance will have significant financial implications for businesses.

This comes as businesses also face higher minimum wages, higher business rates, as well as the cost of adapting to new workers’ rights under the new laws.

Businesses have warned that such additional costs could ultimately impact the government’s goal of growing the UK economy.

But Reeves said the “only way” to boost growth was through investment, warning that “there are no shortcuts”.

“We’re asking businesses to contribute more,” Reeves said. “I know that the impacts of this measure will be felt beyond businesses.”

Businesses come in all shapes and sizes, meaning the impact of the choices the Chancellor makes in her Budget will affect them differently. Large multinational companies will likely be able to shoulder and absorb additional costs, but small, independent businesses may be hit harder.

What are the higher costs businesses face?

• National insurance: The employer contribution rate will rise from 13.8% to 15% on a worker’s earnings above £175 from April. The threshold at which employers start paying tax on each employee’s wages will be reduced from £9,100 a year to £5,000. However, the Chancellor said she would extend the Employers’ Allowance – the amount employers can claim on their National Insurance bill – from £5,000 to £10,500.

• Minimum salary: The minimum wage for over-21s, officially known as the National Living Wage, will be increase from £11.44 to £12.21 from April 2025. For 18 to 20 year olds, the minimum wage will increase from £8.60 to £10. Apprentices will see their pay rise from £6.40 to £7.55 an hour.

• Business rates: The current 75% reduction on fares, which expires in April 2025, will be replaced by a 40% reduction, up to a maximum of £110,000. However, this means that many businesses will see their business rates almost double.

• Workers’ rights: Implementing plans to improve workers’ rights will cost businesses up to £5 billion a year, according to the government’s own analysis. The new measures will have a disproportionate impact on small businesses.

‘Pain’

Some fear that higher taxes will ultimately hurt workers and consumers.

In some cases, businesses could pass on the rising costs they face by raising prices. However, employee salary increases may be limited as employers seek to save money. Other tax revenues could also be affected if companies make lower profits and employees receive lower salaries.

The Office for Budget Responsibility, the UK’s official economic forecaster, said it assumed “most” of the increase in the cost of national insurance would be passed on to workers and consumers by employers through lower wages and higher prices.

Leading business groups said the Budget was “tough” on businesses, highlighting that the National Insurance hike was a major blow to businesses’ ability to invest.

“On the face of it, there is little in the government’s first budget other than short-term pain,” said Roger Barker, policy director at the Institute of Directors.

Rain Newton-Smith, chief executive of the CBI, which claims to represent 170,000 businesses, said the burden on businesses would make it “more expensive to hire staff or raise wages”.

Kate Nicholls, chief executive of UK Hospitality, which represents pubs, restaurants and cafes across the country, added that the tax increases would be a “brake to growth” for the UK.

“Businesses with razor-thin margins are already struggling with sharp increases in labor costs – we are seeing job and hour cuts, reduced investment and business viability, as well as an increase in prices,” she added.

The government is committed to being both “pro-business” and “pro-worker” in its policy decisions and Reeves confirmed that income tax, national insurance for employees and VAT would not be increased.

Callum Thompson is a director of Business Energy Claims, a small litigation practice based in Newcastle which helps businesses recover losses resulting from the mis-selling of energy contracts. He estimated that the National Insurance increase announced in the Budget would cost his business between £18,000 and £19,000.

Mr Thompson, who employs 30 people, plans to open a new office near Liverpool, but said the company would now review its “aggressive plans” to expand and take on additional staff.

Kate Lester, founder and boss of Diamond Logistics in Guildford, admitted that higher costs would “make us think twice about taking on additional staff”.

She added that the tax increases would “add tens of thousands” to her payroll, and said that while she was not opposed to raising the minimum wage, it represented another increase in costs for her business.

But Pip Murray, owner of natural nut butter company Pip & Nut, said the Budget announcements were a “slight relief”, adding that the changes were “pretty moderate and reasonable”.

She said the 1.2% from National Insurance would not represent a “significant cost” for her business, which has 30 employees.

“It could have been much worse,” she added.

While inflicting tax rises on businesses, the Chancellor offered some relief to small businesses, increasing the amount they can claim on their National Insurance bill.

But the chancellor also said the 75% business rates relief, applied to most non-residential properties such as shops, offices, pubs and factories, which was due to expire in April, would be replaced by a 40% reduction for retail businesses. hospitality and leisure businesses next year.

The average store will see business rates rise from £3,589 to £8,613 next April, while pub costs will rise from £3,938 to £9,451. Restaurants will see their average business rates bill rise from £5,051 to £12,122, according to commercial property intelligence firm Altus Group.

Additional reporting by Josh McMinn.