Worries that NI businesses may pay staff in cash

The rise in employer’s National Insurance (NI) increases the risk that businesses will resort to making off-the-books cash payments to staff, a study for Stormont’s Department of Finance suggests.

From April employers have had to pay NI at 15% on salaries above £5,000, up from 13.8% on salaries above £9,100.

That makes it more expensive for businesses to employ people.

The study by Ulster University academics, which included consultation with business groups, said this risks encouraging the “informal economy”.

“There is an increased risk that businesses could return to operating on a cash-in-hand basis only,” the analysis from the university’s Economic Policy Centre (EPC) said..

It added that it is “important to note this point was only expressed in a small minority of consultations”.

The major conclusion from the EPC is that the rise in employer’s NI will have a greater impact in Northern Ireland compared to any other UK region.

This is because Northern Ireland is a region where pay is relatively low and the greatest proportional impact of the NI increase is on employers of lower paid staff.

The study found that Northern Ireland employers had been prepared for a rise in the National Living Wage (adult minimum wage) but the rise in NI had been unexpected and therefore more difficult to manage.

It said: “Overall employers were accepting of the NLW increase, perhaps higher than most would have liked but that is the typical response from employers most years.

“This acceptance reflects the knowledge that the government increases the NLW rate annually and also because salaries are being driven higher by labour market forces in any case.”

Finance Minister John O’Dowd said the study “reaffirms that decisions in Westminster are having a detrimental impact on our business community and voluntary sectors as well as impacting on our public finances”.

The government has previously defended the NI increase by saying it had to raise additional money to ensure the stability of public finances and address the NHS backlog.