Working people will pay for Reeves’s NI hike

Who would pay for Rachel Reeves’s increase in employers’ National Insurance contributions? Well yes, in the first instance it is the companies that would have to hand over the cash, but the real burden would be much more widely shared.

To see why, start with the simple question: what does a company do if it finds its labour costs have suddenly gone up? It can do nothing, in which case its profits fall (or even less agreeably, its losses rise) and it pays a bit less in corporation tax. It can trim its workforce to hold costs down, which will cut the government’s take from income tax, and – of course – from National Insurance. It can increase its prices, in which case customers pay. It can cut or postpone investment, accepting some damage to future growth. It can hold down wages, in which case it is the workers who pay.

The balance between these different consequences varies enormously from company to company and sector to sector, and it is extraordinarily hard to predict the overall outcome.