The Government has done a terrific job of supporting households and business during the Covid crisis, with innovative solutions such as the furlough scheme and bounce-back loans.
Which makes it all the more surprising and disappointing that it seems poised to undo much of its good work by pressing stubbornly ahead with a 1.25 per cent hike in national insurance at precisely the wrong moment.
If it is brought in as planned this April it will take effect in precisely the same month that the energy price cap expires, triggering a rise in fuel bills of up to 50 per cent. It’s no exaggeration to say we are in an economic perfect storm.
Touker Suleyman pictured in 2018. The Dragons’ Den panellist said: ‘These increases affect everyone, but they hit working people – those who will be affected by the NI rise – hardest’
Inflation – already at a 30-year high – is likely to rise to six or even seven per cent as a result of the spiralling cost of domestic fuel and this will create a cost-of-living crisis that will have devastating effects on millions.
Mortgage repayments are increasing too as the Bank of England raises interest rates in a bid to – ironically – curb inflation.
These increases affect everyone, but they hit working people – those who will be affected by the NI rise – hardest.
Even those who kept their jobs last year saw their incomes reduced under furlough.
These are anxious times, and the repercussions will continue for months, if not years, to come. Is this really the time to hit people with yet another rise?
An NI hike will leave employees hundreds of pounds out of pocket, with some families facing painful choices: food or heating, new shoes for the children or fix the car? The last thing they, or the economy, needs is another financial blow.
I understand that the Government will need to find the money to cover the booming cost of running the NHS, and the social care funding problem also needs to be addressed.
The imminent tax increase was designed by the economists advising Rishi Sunak months ago, before Omicron
But these issues have confronted us for decades and will take years to resolve.
With the economy in such a fragile state, now is not the time to solve them with what amounts to a tax on jobs. It is morally wrong and makes no economic sense.
Not only will it undermine recovery, I fear it could easily tip us into recession, since the blow will fall on both employers and employees, hitting small businesses – the lifeblood of the British economy – particularly hard. And you don’t have to take my word for it.
The highly respected Centre for Economics and Business Research estimates that a typical small business with 50 employees could end up paying an extra £10,000 to £20,000 annually, potentially deterring them from taking on new staff.
Nationally, this would amount to the loss of hundreds of thousands of potential jobs, while people in work face pay freezes which, with inflation, amount to pay cuts.
And if people have less money to spend there is a domino effect on business. Fewer people spending money in shops and restaurants means reduced revenue from income tax and VAT.
The Government – as well as the rest of us – will end up poorer if it goes ahead with its plan.
Mr Suleyman wrote: ‘The Government does not have direct control over rising energy and fuel costs or on global inflation or transport costs. But it does have direct control over tax and the timing of tax rises’
Already, many businesses are facing post-pandemic problems. With many staff wanting to carry on working from home, shops, restaurants and transport companies will continue to suffer.
Coupled with long-term problems, such as punitive business rates, the effect could be to push many over the edge.
I can only assume the Chancellor has not talked to anyone involved in the commercial world lately, because if he had he would know that we are all deeply worried.
I talk to fellow business leaders all the time – not one of them is anything but anxious and appalled by this imminent tax increase.
It was designed by the economists advising Rishi Sunak months ago, before Omicron when we seemed headed for calmer waters.
No one expected a new variant to hit the pre-Christmas trade. But it did – and hard.
Those who work in retail or in hospitality saw the impact of Omicron immediately, just as we are now seeing the impact on our trade of rising mortgages, energy prices and other costs that are forcing customers to cut back, put off new purchases and not eat out.
Add a tax rise to the mix and you have a recipe for a disaster that will capsize the economy.
With many of my staff feeling the strain, we are reviewing salaries to see how we can help them.
But not all businesses are able to do so and things will get worse as inflation continues to rise.
The Government does not have direct control over rising energy and fuel costs or on global inflation or transport costs. But it does have direct control over tax and the timing of tax rises.
‘Those who work in retail or in hospitality saw the impact of Omicron immediately, just as we are now seeing the impact on our trade of rising mortgages,’ Mr Suleyman said
The Treasury must show the same level of agility and flexibility that it demonstrated throughout the pandemic and adapt to the situation by postponing the NI rise instead of just ploughing on.
It can always keep the decision under review for six months, nine months or even longer, until the cost of living crisis has eased.
We have been living through unprecedented times. They require unprecedented measures to keep the economy going. The Government is doing the right thing by encouraging people to return to the office.
Since the suspension of Plan B restrictions it has been great to see people back on the streets and in the shops.
But if the Government presses ahead with an NI rise, those steps back to recovery will be reversed.
When the average person is being financially squeezed, they cut back on spending, demand goes down and businesses have to lay people off. That’s how recession starts.
And with recession comes reduced tax revenues and that’s bad news for the NHS and social care – the very services that the NI rise is supposed to help.
People and businesses need a chance to get back on their feet. An NI rise will cripple them – and the economy instead.
It’s not too late to adapt by postponing the NI rise. I just hope that the Chancellor is bold enough to do the right thing.