NI increase to hit employment in half of firms

More than half of Britain's manufacturing companies intend to reduce employment levels when the Government's increase in National Insurance contributions takes effect next April.

A third of businesses also intend to shift more production abroad while a quarter plan to cut their pension contributions, a survey released today by the Engineering Employers' Federation shows.

Seven in 10 companies said they would try to absorb the cost of the 1 percentage point increase in employers' NICs to 11 per cent. But just under half also said they would seek to pass on some of the costs to their customers.

Martin Temple, the EEF's director general, said: "The survey confirms our worst fears about the effect of yet another cost, on top of rising insurance premiums, increased pensions and the climate change levy. The Government is playing a very dangerous game with manufacturing jobs and its future competitiveness."

The EEF estimates that the increase in NICs will add about £675m to the labour costs of UK manufacturing industry, which employs about 3.7 million people. Stephen Radley, the organisation's chief economist, said this could translate into 25,000 job losses but it was impossible to put a precise figure on the impact because individual businesses would be affected to different degrees.

Of the 1,000 companies surveyed, 30 per cent said they had not yet decided how to react to the increase. Of those that had, 53 per cent said they would reduce their workforce and 32 per cent said they would move costs abroad.

Mr Temple added that whilst the rise in NICs might not have a huge effect on its own, taken together with other cost increases, it was creating a much less welcoming environment for manufacturing and preventing vital investment taking place.