Higher National Insurance costs and higher wage bills are being paid by major government contractors to the Treasury, raising concerns about the ultimate burden on taxpayers.
Cleaning and facilities management groups such as Churchill Group and Mitty, along with construction giant Mace, are among those negotiating with Whitehall to pass on the financial impact of April’s employment-related tax rises.
From next spring, employer contributions to National Insurance will rise from 13.8% to 15%, and the National Living Wage will rise from £11.44 to £12.21 per hour. While private sector providers with commercial clients face reducing their workforce or achieving other cost savings, large third-party suppliers serving the public sector are working to secure higher contract rates instead. Many already have contractual clauses allowing for price revisions in the event of “legislated increases” in labor costs, while others are renegotiating to protect tight margins.
The Churchill Group, which cleans rolling stock for train companies under the supervision of the Ministry of Transport, confirmed that it was raising interest rates to compensate for higher wages and higher National Insurance. Mitie expects to recover 60% of the additional NIC bill – around £35m – through similar pass-through terms. Mace will open discussions with government departments to recover the costs of construction and infrastructure projects, including hospitals.
Government sources say they have no choice but to pay for public services rather than cut them. Some fear a wave of cost increases across offshore contracts next year, especially as Treasury analysis suggests the NI changes will also inflate the operating costs of major retailers such as Tesco and Amazon by billions of pounds.
Trade lobby groups, including the British Retail Consortium, have warned that the “sheer scale” of additional labor costs could force private sector employers to shed jobs. However, Paul Nowak, general secretary of the Trades Union Congress, says criticism of companies “should be taken with a grain of salt”. The Treasury insists its budget will provide economic stability, extend targeted business rates relief for hospitality, retail and leisure, and introduce a permanent lower rate from 2026.