Major government contractors are pushing the cost of rising national insurance (NI) and higher wage bills back into the Treasury, raising concerns about a greater burden on taxpayers.
Cleaning and utilities groups such as Churchill Group and Mitie, as well as construction giant Mace, are among those negotiating with Whitehall to pass on the financial impact of April’s employment-related tax increase.
From next spring, NI employer contributions are rising from 13.8% to 15% and the national living wage is rising from £11.44 to £12.21 an hour. While private sector suppliers with commercial clients are faced with downsizing their staff or other cost savings, leading suppliers serving the public sector are getting higher contract prices instead. Many already have contract clauses that allow for price revisions if “statutory increases” in labor costs occur, while others are renegotiating to protect smaller margins.
The Churchill Group, which cleans rail carriages for rail companies under the Department for Transport, has confirmed it is raising prices to cut wages and increase NI. Mtie expects to recoup 60% of its NIC surplus—about £35 million—on the same pass-through terms. Mace will open negotiations with government departments to recover the costs of construction and infrastructure projects, including hospitals.
Government sources say they have no choice but to pay rather than cut public services. Some fear there will be a wave of cost increases on all foreign contracts next year, especially as the Treasury’s own analysis suggests that the NI changes will increase operating costs at major retailers such as Tesco and Amazon by billions of pounds.
Business lobby groups, including the British Retail Consortium, have warned that the “huge scale” of increased labor costs could force private sector employers to cut jobs. However, Paul Nowak, general secretary of the Trades Union Congress, says that the companies’ criticism “should be taken with a grain of salt.” The Ministry of Finance insists that its budget will bring economic stability, increase the relaxation of business rates aimed at visitors, retail and leisure, and introduce a permanent minimum price from 2026.
