Chancellor Rachel Reeves has confirmed there will be a rise in employers’ national insurance contributions to 15%, a lower figure than anticipated.
Delivering the first budget by a Labour government in 14 years, and the first by a female chancellor, Reeves said employers’ NI would go up by 1.2 percentage points from April 2025, a move that will raise £25 billion a year for the Treasury.
This is a slightly lower increase than the 2 percentage points some observers had predicted. However, the threshold at which employers must start paying NI on workers’ earnings will be lowered significantly from £9,100 to £5,000.
Employment Allowance
The government will also expand the Employment Allowance by removing the £100,000 eligibility threshold, to simplify and reform employer NICs so that all eligible employers will benefit. The allowance will increase from £5,000 to £10,500.
The Federation of Small Business described the move as a “policy win”. Posting on X it said: “That’s £10,500 off every small employer’s national insurance bill every year. This is up from £5,000 and will be a huge help for small firms.”
Taken together, Reeves said it means that 865,000 businesses will pay no NICs at all, and more than half of employers with NIC liabilities will either see no change or will gain overall next year.
She added that the decision to raise employers’ NI and reduce the threshold were “difficult choices” that the government “did not take lightly”.
Reeves said that the changes, which come into force on 6 April 2025, would allow businesses to employ up to four full-time national living wage workers without paying employers’ national insurance on their wages.
Black hole
Autumn Budget 2024
Reeves said that the government would publish a “line-by-line” breakdown of the much-cited £22 billion black hole the government inherited from its predecessor.
She claimed that reductions to employees’ NI contributions introduced by the Conservative government this year had not been “honest”, because they were based on a forecast by the Office for Budget Responsibility that was “materially different” than the real state of public finances.
She warned that the Treasury would need to raise taxes and cut public spending to the tune of £40 billion if it was to “fix the foundations and deliver change”.
Reeves acknowledged that “pay cheques do not go as far as they once did”, reaffirming the government’s commitment, announced yesterday, to raise the 2025 national living wage by 6.7%.
Income tax thresholds
A surprise move from the Chancellor was the decision not to extend the freeze in employee income tax and NI thresholds that had been implemented by the previous government.
From 2028-29, personal tax thresholds will be uprated in line with inflation, meaning workers can earn more before incurring higher taxes.
The Treasury will, however, clamp down on umbrella companies that “exploit workers” by failing to comply with IR35 off-payroll tax obligations. To do this, it will recruit more staff to HM Revenue and Customs and “go after” the promoters of tax avoidance schemes, Reeves said.
The government also said it would soon publish the Get Britain Working White Paper, which will focus on ways of getting people back into work, alongside a £240 million investment.
Reeves said the white paper will look at new approaches and “collect robust evidence” on how to tackle the root causes of ill‑health related inactivity, support young people who are ‘not in education, employment or training’ (NEET), and help people to develop their careers.
Additional measures
Other announcements included in the budget were:
- £2.3 billion more for schools to support the pledge to recruit thousands more teachers into key subjects;
- Allowances for carers will be increased from £81.90 a week to the equivalent of 16 hours at the rate of the national living wage.
- Scrapping criminal immunity on “low-value” shoplifting in response to trade union Usdaw’s campaign to support retail workers, plus additional funding to stop organised shoplifting gangs;
- Investment in green hydrogen and other renewable energy projects as part of the Great British Energy initiative, which will create “good quality, local jobs”;
- Confirmation that government-funded childcare would get a boost of £1.8 billion in England, helping an additional 60,000 working parents to enter and stay in employment by 2028, according to the OBR.
Opposition leader and former prime minister Rishi Sunak accused Labour of “fiddling the figures”, saying the government had delivered “broken promise after broken promise”.
“They’re taxing your job, they’re taxing your business, they’re taxing your savings. You name it, they’ll tax it,” Sunak said.
TUC general secretary Paul Nowak said the chancellor had been left with a “toxic legacy of economic chaos”.
He said: “With today’s budget the chancellor has acted decisively to deliver an economy that works for working people.
“Tax rises will ensure much-needed funds for our NHS, schools and the rest of our crumbling public services, with those who have the broadest shoulders paying a fairer share. The chancellor was right to prioritise hospitals and classrooms over private jets.
“There is still a lot more work to do to clean up 14 years of Tory mess and economic decline – including better supporting and strengthening our social security system. But this budget sets us on an urgently needed path towards national renewal.”
Neil Carberry, chief executive of the Recruitment and Employment Confederation, said Reeves had a “difficult job”, “navigating a challenging fiscal picture”.
However, he added: “Growth is delivered by businesses, and the mix of tax rises and other costs imposed on firms by the government will make getting there harder. Many business leaders will be feeling concerned about the direction of travel this evening.”
Mathew Akrigg, policy and research officer for the Chartered Institute of Payroll Professionals (CIPP), said: “These are fantastic news stories for the worker, however, they come at a huge cost to employers.”
He said that the rise in employers’ NI and increase to the national living wage could “lead to suppressed wage growth and reduced employment opportunities”.
“It is therefore positive for small businesses that the Employment Allowance will see an increase from £5,000 to £10,500. Small businesses make up the majority of employers in the UK, therefore it is key to the government plan for growth to support such companies.”
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