The Chancellor Rachel Reeves confirmed that employers’ contributions to national insurance will rise from 10% to 15%. This is a smaller figure than expected.
Reeves, the first female chancellor in 14 years and the first Labour government to deliver a budget, said that employers’ NI will increase by 1.2 percentages points starting April 2025. This move will generate PS25 billion a yearly for the Treasury.
The increase is slightly less than the prediction of 2 percentage points by some observers. The threshold below which employers will have to start paying National Insurance on employees’ earnings has been lowered from PS9100 to PS5,000.
Employment Allowance
To simplify and reform employer NICs, the government will expand Employment Allowance, removing the PS100,000. This will allow all employers to benefit. The allowance will rise from PS5,000 up to PS10500.
The Federation of Small Business called the decision a “political win”. The Federation of Small Business posted on X that the move would save every small employer PS10,500 in national insurance costs every year. This is an increase from PS5,000, and will be of great help to small businesses.
Reeves stated that, taken together, this means 865,000 businesses won’t pay any NICs, and over half of employers who have NIC liabilities next year will either not see a change or gain in total.
She said that raising employers’ NI, and reducing the threshold for calculating it were “difficult decisions” that the Government “didn’t take lightly”.
Reeves stated that the changes will come into effect on 6 April 2025 and allow businesses to hire up to four national living wage full-time workers without having to pay employers’ national security on their wages.
Black Hole
Reeves stated that the government will publish a breakdown “line-by line” of the much-cited PS22-billion black hole it inherited from the previous government.
She said that the reductions in employee NI contributions implemented by the Conservative Government this year were not “honest” because they were based upon a forecast from the Office for Budget Responsibility which was “materially differing” from the actual state of the public finances.
She said that the Treasury will need to increase taxes and reduce public spending by PS40 billion to “fix foundations and bring about change”.
Reeves acknowledged “pay checks do not go as much as they used to”, reaffirming yesterday’s announcement by the government that would raise the national living wage in 2025 by 6.7%.
Income Tax Limits
The decision of the Chancellor to not extend the freeze on employee income tax thresholds and NI was a surprise.
In 2028 and beyond, the personal tax thresholds are being adjusted to keep pace with inflation. This means that workers will be able to earn more without having their taxes increased.
Treasury will however clamp down on umbrella firms that “exploit” workers by failing to comply IR35 off payroll tax obligations. Reeves stated that the Treasury will “go after” tax avoidance scheme promoters by recruiting more staff at HM Revenue and Customs.
The government said that it will soon release the Get Britain Working White Paper which will concentrate on ways to get people back to work. It also announced a PS240million investment.
Reeves stated that the white paper would look at new approaches, “collect robust evidence”, and how to combat the root causes behind ill health related inactivity. It will also support young people not in education, training, or employment (NEET), as well as help people develop their career.
Additional Measures
The budget also included:
- The pledge to hire thousands of more teachers in key subjects will be supported by an additional PS2.3 billion.
- The allowances for carers are to be increased by PS81.90 per week, which is the equivalent of 16-hours at the rate of national living wage.
- In response to the trade union Usdaw campaign for retail workers to be supported, additional funding will be provided to stop organised gangs of shoplifters.
- The Great British Energy Initiative will invest in green hydrogen and renewable energy projects that will create “good-quality, local jobs”.
- According to the OBR, government funded childcare will receive a boost in England of PS1.8 billion, enabling an additional 60,000 parents to gain employment and remain in it by 2028.
Former prime minister and opposition leader Rishi Sunak has accused Labour of “fiddling with the numbers”, saying that the government has broken “promise after promise”.
“They tax your job, your business, and your savings.” Sunak said, “They’ll tax anything you can think of.”
TUC General Secretary Paul Nowak stated that the chancellor was left with “a toxic legacy of economic chaos”.
He said: With today’s Budget, the chancellor took a decisive step to create an economy that works well for workers.
Tax increases will provide much needed funds for our NHS and schools, as well as the rest of the crumbling public services. Those with the biggest shoulders should pay a fair share. The chancellor made the right decision to prioritize hospitals and classrooms above private jets.
“There’s still more work to be done to clean up the mess left by 14 years of Tory economic decline and to better support and strengthen our social security system. This budget puts us on a path to national renewal that is urgently required.
Neil Carberry said Reeves’ job was “difficult”, as he had to “navigate a challenging financial picture”.
He added, “However, growth is delivered by business, and the combination of tax increases and other costs imposed by the government on firms will make it harder to get there.” “Many business leaders are likely to be concerned with the direction that we’re heading in this evening.”
Mathew Akrigg is the policy and research officer at the Chartered Institute of Payroll Professionals. He said, “These stories are great for workers, but they cost employers a lot.”
He stated that an increase in the employers’ NI as well as the national living wages could “lead [to] suppressed wage increases and reduced employment opportunities”.
It is good news for small business that the Employment Allowance has increased from PS5,000 up to PS10500. The majority of UK employers are small businesses, so it’s important that the government supports them in its growth plan.
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