NI rise could cut pay deals

HIGHER National Insurance contributions may result in lower pay rises, the Bank of England says today. Gordon Brown is imposing a 1% surcharge on employers' and employees' NI contributions from April to help pay for investment in the NHS.

Past experience suggests that tax-neutral changes in NI lead to a reduction in working hours rather than a loss of jobs, but the largest impact is felt through reduced wages and higher prices.

This time around the Bank believes that the NI increases will not be passed on in the shape of higher prices because this will risk prompting the monetary policy committee to raise interest rates. It suggests that the main burden will fall on workers through lower wage settlements.