Chancellor Rachel Reeves presented her Autumn Budget 2024 to Parliament today (Wednesday 30 October) and announced the aim to raise taxes by £40bn.
Of these, an estimated £25bn will come from an increase in Employer National Insurance Contributions (NICs). She confirmed that the 1.2 percent increase will come into force from April 2025, and that the secondary threshold – where employers start paying national insurance on an employee’s salary – will be lowered to £5,000 per year from the current £9,100.
“I know that this is a difficult choice. I do not take this decision lightly,” Reeves told the House. “We are asking business to contribute more, and I know that there will be impacts of this measure felt beyond businesses, too.”
Still, she added, it was “the right choice to make” given the circumstances. However, the Chancellor also announced measures to shield small businesses from the brunt of it. In a surprise announcement, Reeves revealed an increased threshold under the Employment Allowance to offset the costs for small businesses.
According to a statement by the Treasury, “The smallest businesses will be protected as the Employment Allowance will increase to £10,500 from £5,000 and be extended to all eligible employers by removing the £100,000 cap, allowing firms to employ up to four National Living Wage workers full time without paying employer National Insurance on their wages.”
‘Huge Cost to Employers’
This addresses some of the concerns voiced by experts and business leaders In the days preceding the Budget. Many have long feared that increase, alongside the expenses to fully enact the Employment Rights Bill and a 6.7 percent increase to the minimum wage, may put too much pressure on small businesses.
Mathew Akrigg MCIPP MAAT, Policy and Research Officer for the Chartered Institute of Payroll Professionals (CIPP), commented, “With our new government’s pledge to ‘make work pay’, it’s no surprise that since Labour came into power, we’ve seen positive movements in the world of National Living Wage (NLW), parental rights, statutory sick pay (SSP) and much more.
“These are fantastic news stories for the worker, however they come at a huge cost to employers. And today’s announcement is no different, in that employer’s National Insurance contributions will be increasing by 1.2 percentage points and the threshold at which employer’s pay National Insurance will reduce from £9,100 to £5,000, increasing the overall cost of employment to employers throughout the UK. This may 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.”
‘Knock-On Consequences’
Damon Hopkins, Head of DC Workplace Savings at independent financial services consultancy Broadstone, said that the NICs increase is still likely to have “knock-on consequences” – whether that is “pausing hiring, scaling back or scrapping pay increases and/or reviewing existing employee benefit arrangements” – with the exception of “very small businesses”.
The sentiment was echoed by Sheila Attwood, Senior Content Manager, Data and HR Insights at Bightmine.
“Given the economic pressures businesses are already facing, the increase in employer National Insurance Contributions (NI) will likely prompt leaders to reassess their pay award budgets for the coming year,” she said.
‘The Value of Talent’
With many businesses likely to look for ways to cut costs, there are concerns that this may result in fewer hires, as well as redundancies among staff. Ronni Zehavi, CEO and Co-Founder of HiBob, has called for employers not to make “rush budget decisions” following the announcement of NICs increases.
“While many may have to look to reduce wages or cut back on staff investment to even out costs, it’s important for business owners to remember the value of talent in the long run. What is legislated today, could change in a matter of a few years,” Zehavi said.
“The cost of employing people remains the most significant burden on businesses. As new measures are rolled out to support working individuals, it is crucial that we don’t overlook the vital need for assistance to those who employ them. Balancing this will be key in ensuring both workers and businesses thrive in the challenging times ahead.”
Neil Carberry, Chief Executive of the Recruitment and Employment Confederation (REC), commented, “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.
“Reassuring businesses must now be about ensuring the additional contribution they are making will flow back to them in the form of better fundamentals in our economy: ease of doing business, shorter waiting lists, easier planning, new infrastructure and better access to low-cost investment capital. The Industrial Strategy matters to this – but it must deliver. If business is being asked to do its bit – the government must also step up.”
