Major government contractors are pushing the costs of rising National Insurance (NI) and higher wage costs back onto the Treasury, raising concerns about the ultimate burden on taxpayers.
Cleaning and facilities management groups such as Churchill Group and Mitie, 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 the NI 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 customers face workforce reductions or other cost savings, leading outsourcers serving the public sector are instead providing higher contract rates. Many already have contract clauses that allow for price revisions if there are “legislative increases” in labor costs, while others are renegotiating to protect narrow margins.
Churchill Group, which cleans train carriages for railway companies overseen by the Department for Transport, has confirmed it is increasing fares to offset wage and NI increases. Mitie expects to recoup 60% of the additional NIC bill – around £35m – through similar pass-through clauses. Mace will initiate discussions with government departments to recoup costs for construction and infrastructure projects, including hospitals.
Government sources say they have little choice but to pay up rather than cut public services. Some fear a wave of cost increases for outsourced contracts next year, especially as the Treasury’s own analysis shows the NI changes will also increase operating costs for 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 additional labor costs could force private sector employers to cut jobs. Still, Paul Nowak, general secretary of the Trade Union Congress, says the criticism from companies “should be taken with a grain of salt.” The Treasury insists its budget will deliver economic stability by extending targeted business rate cuts across hospitality, retail and leisure and introducing a lower permanent rate from 2026.