Rachel Reeves' National Insurance raid will leave the defence industry with a £150 million bill and could threaten national security, experts have warned.
National Insurance contributions (NICs) for defence firms in the UK will increase from almost £700 million to £850 million a year, according to ADS, a defence trade body.
The defence sector has 164,000 employees on an average median salary of £39,900 per year, and the rise in NICs will mean an additional £985 per worker for defence firms.
The Conservatives have warned that it is likely that the Ministry of Defence (MoD) will be left to pick up the bill.
ADS also pointed to the 6.7 per cent increase in the national living wage, coming into force in April alongside the NIC increase, affecting small businesses in the defence sector.
The cost of the rise in NICs for the defence sector over the duration of Parliament would equate to the cost of training 12,000 soldiers.
John Healey, the Defence Secretary, suggested last year that some defence projects would be cancelled to "get a grip of the public finances".
The UK spent £53.9 billion on defence in the 2023-24 financial year, which is expected to rise to £56.9 billion for 2024-25.
But the Government is under pressure to commit to a timeline as to when it will reach its manifesto commitment of 2.5 per cent of GDP spending on defence.
James Cartlidge, the shadow defence secretary, said: "'With the threat of war more serious than for generations we need our sovereign defence industry to be firing on all cylinders.
"Instead, Labour are hitting our defence industry with over half a billion pounds in new taxes.
"Combined with their delays to higher defence spending, this means Labour are undermining our ability to rearm when the number one priority of Government right now should be to stand up to the threats we face. They've shot UK defence in the foot at the worst possible time."
Luke Pollard, the defence minister, announced last month that a deadline would be set, along with the completion of the Strategic Defence Review in the coming months.
From next April, employers will have to pay National Insurance (NI) at 15 per cent on salaries above £5,000, instead of the current 13.8 per cent on salaries above £9,100.
The NI rise is expected to raise £20 billion each year for the Treasury, making it one of the biggest single tax-raising measures in history.
The defence industry is the latest sector to warn about the impact of the NI rise, with GP practices, hospitality firms and small businesses all feeling the impact.
A government spokesman said: "By bringing back political and financial stability, we are creating the conditions for economic growth. We have also ensured 850,000 businesses will either pay less or no employer National Insurance at all next year.
"We recognise the vital contribution that the defence sector makes not just to national security, but also as an engine for growth, supporting high-quality jobs across the UK."