Amend new employer tax policy, Social Enterprise UK tells Labour – as survey scrutinises government’s impact

The employers’ National Insurance Contribution (NICs) increase announced by the UK government in the Autumn budget must be modified or social enterprises providing public services may be forced to shut down, according to Social Enterprise UK’s latest report.

SEUK’s most recent Social Enterprise Barometer, published this week and based on a survey of 152 social enterprises, found 35% of respondents were pessimistic about the government’s impact on their business, even before the UK budget – which increased employer National Insurance Contributions – was announced. A third of social enterprises were optimistic and 33% were neither optimistic or pessimistic (SEUK has rounded these figures up).

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The report’s recommendations include calling for an uplift in funding for social enterprises providing public services on fixed contracts to make up for the rise in NICs, or for those businesses to be exempt from the tax rise. It warns that unless this happens, the additional cost pressures caused by the rise in NICs will limit social enterprises’ capacity, or even prompt their closure.

At the end of November, SEUK launched a petition calling on the government to review how the increase on NICs impacts not-for-profit providers of public services. Elsewhere, the National Council for Voluntary Organisations published an open letter urging the chancellor to commit to reimbursing voluntary organisations’ increased employer NICs, as it says the government will for the public sector.

The survey for the Social Enterprise Barometer was conducted in October. Dean Hochlaf, SEUK’s head of policy and research, points out that even before the budget, 46% of social enterprises responding to the survey reported labour costs as a challenge affecting turnover. 

A Charity Finance Group survey conducted after the budget and published this week found the majority of charity employers are concerned about absorbing significant additional staffing costs caused by the announced rise in employer NICs, the lowering of the pay threshold at which employers start to pay NICs for their members of staff and the 6.7% increase in the National Living Wage.

Hochlaf (pictured) said: “Putting that into context of the employer NICs rises, given that's a specific tax on employment, that is going to hit those bigger employers, those working in public services, quite hard. It does raise questions around the fairness and effectiveness of this almost singular tax rise, which is doing the majority of the heavy lifting of the budget’s tax increase.”

For the government to inspire optimism among social enterprises, Hochlaf said it needs to deliver on its rhetoric about supporting the sector. He added: “Fundamentally, these businesses are completely necessary for supporting economic growth more widely. I think they need a little bit more reassurance, a bit more engagement and clearer policies where they can directly benefit from in their day to day operations.”

NICs rise forces CIC to cut jobs

Ian McGrady is managing director of Edsential, a community interest company (CIC) based in north west England which provides a wide range of services to schools, including catering and cleaning, music education, holiday clubs and staff training. 

McGrady (pictured) said in the build up to the budget he was already concerned about the government’s impact on the business, because of speculation about what may be announced, but the changes to employer NICs has had more of a negative effect than anything that had been predicted.

Edsential employs around 900 members of staff, many on part-time contracts in roles like cleaning or catering, and has a turnover of £20m per year. Because the NICs thresholds have been lowered, Edsential will have to pay the tax for many staff it didn’t previously have to. McGrady estimates the rise in NICs will cost £610 per employee per year across the whole business and, combined with the lowered NICs thresholds and rise in National Living Wage, will cause an increase in Edsential’s cost base of £1m.

To manage the increased costs, Edsential is having to plan job cuts and a pay rise freeze for remaining employees. McGrady said many businesses have already had to cut “the easy stuff” to survive the Covid-19 pandemic and inflation, so job cuts are the inevitable result of a tax focussed on the cost of employment. 

McGrady said: “It's not large corporates that are feeling the pain in this, it's going to be the ones who are employing people in low paid sectors, and therefore the pain is going to be passed on to those people. In the future, as companies struggle to cope with costs, there will be job losses and there will be fewer jobs for those people to apply for. It feels completely at odds with [the government’s] policy position.”

The government must provide local authorities, and in Edsential’s case schools, with the necessary funding so they can meet the increased costs of providers, believes McGrady. He warns that otherwise the increased costs will reduce the number of organisations willing to take on local authority contracts, because the contracts won’t cover the costs of delivering them.

Government support for social enterprises will help it deliver on priorities

The Social Enterprise Barometer calls on local authorities to build strategies to embed social enterprises in the delivery of community services and for the involvement of social enterprises in the ongoing development of National Procurement Guidance, prior to new legislation on public procurement being implemented in February 2025. 

The government has stated that the new public procurement legislation will specifically aim to benefit a range of suppliers, including social enterprises. The Social Enterprise Barometer found 60% of social enterprises generated at least some income through work with the public sector and 18% reported that although they don’t currently apply for public contracts, the new procurement legislation may encourage them to do so. 

Hochlaf emphasised that better support for social enterprises will help the government and local authorities deliver on their priorities. He said: “Many [social enterprises] benefit particular groups within their local community. They're hiring from the local community. They're paying people from the local community, getting money into the pockets of the local community. 

“So more of these businesses in your area will help drive economic growth, and these are businesses which aren’t looking to extract any profit. It actually helps to retain wealth within communities.”
 

Header image: School students eat a meal provided by Edsential (courtesy of Edsential)