BoE: 66% of firms report lowering profit margins: "NI hikes have become a slow leak in Britain’s business engine"

BUSINESSES are cutting their profit margins and hiring less following the Employers' National Insurance hikes, according to a Monthly Decision Maker Panel survey carried out by the Bank of England in August. One business owner said: “National Insurance hikes have become a slow leak in Britain’s business engine.”

Realised annual employment growth, the survey found, was -0.5% in the three months to August, 0.4 percentage points lower than in the three months to July.

Expectations for employment growth over the next year have also weakened, falling by 0.3 percentage points to 0.2% in the three months to August. 

Meanwhile, the survey asked firms about the margins of adjustment to the changes in employer National insurance contributions (NICs) implemented in April 2025.

Firms were allowed to select more than one option. 66% of firms reported lowering profit margins, 34% raising prices, 46% lowering employment and 20% paying lower wages than they otherwise would have done.

Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning, commented: “National Insurance hikes have become a slow leak in Britain’s business engine. Two-thirds of firms are bleeding margins, meaning less fuel for jobs, growth and pay packets.

"Some companies will stall completely, drifting towards closure, with insolvency firms circling like vultures. Instead of powering recovery, these policies are draining the tank dry.”

Justin Moy, Managing Director at Chelmsford-based EHF Mortgages commented: “The government just doesn’t understand that if you increase costs and taxation, you will likely get lower revenues, not increased income. This is a classic demonstration of the Laffer curve.

"Small business owners are echoing the opinions of tax payers in general and the government need to acknowledge, not ignore this.”

Scott Gallacher, Director at Leicester-based Rowley Turton, added: “Like many smaller businesses, we’re feeling the squeeze from the National Insurance hike. We’re not passing costs onto clients, but instead focusing on working smarter to do more with our current team.

"For firms like ours, the future is about delivering the best possible service to clients without raising fees.”

Laura Purkess, Personal Finance Expert at Investing Insiders, said the findings were unsurprising: "It makes sense that cost increases will force businesses to look for ways to cut costs in other ways, and many smaller businesses warned that a national insurance hike would result in them having to reduce their overheads, but these warnings were dismissed as scaremongering. While there may not have been the mass redundancies that some suggested could happen, businesses have cut hiring and pay rises, or have simply not replaced people who have left. This was eventually going to show up in the numbers.

“Firms are now cutting profit margins, which could mean even less room to hire, promote or increase pay in future. The business rates double-whammy next year could be another blow for small businesses, who have less breathing space than larger firms to ride out rising costs. The government urgently needs to prioritise support for smaller businesses to avoid stifling growth even further.”