Following the announcement of the Autumn Budget on Wednesday 30 October, Chancellor Rachel Reeves has admitted that the measures could impact wage growth for workers.
However, she added, the Office of Budget Responsibility forecast that “household incomes will increase during this Parliament”.
Reeves acknowledged that the £40 billion budget could impact wage growth due to adjustments in employer national insurance contributions (NICs). At the same time, people on low income will see their wages grow through the 6.7 percent increase to the National Living Wage, raising it from £11.44 to £12.21 per hour from April 2025. It is the government’s aim to bring the National Living Wage and National Minimum Wage closer to a unified adult rate.
Budget Concerns from Business Organisations
Business groups expressed concerns over the combined effect of increased wage requirements and NIC changes on employers. Notably, the Chartered Institute of Payroll Professionals (CIPP) cautioned that the rise could pose challenges, especially for small businesses dependent on younger staff, such as those in retail, hospitality, and childcare sectors.
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In addition to wage increases, employers will face a 1.2 percent rise in their NIC rate, moving from 13.8 percent to 15 percent. Andrew Timpson, employment tax partner at RSM UK, noted that the impact could add approximately £940 annually per employee based on the average UK salary of £36,000, effectively raising NIC rates by around 3 percent. He added that this may place added pressure on companies’ compensation structures and potentially accelerate job reductions to offset NIC expenses.
“Notwithstanding the negatives, the positive is employees and employers continue to benefit from NIC savings through pension salary sacrifice arrangements, as the mooted employers’ NIC charge on pension contributions has not materialised,” Timpson said. “Any businesses that are still procrastinating on implementing a pension salary sacrifice arrangement should look to put them in place as soon as possible to benefit from the increased NIC savings.”
However, the Chancellor’s office indicated that the blow would be softened for smaller businesses, who are set to receive support with the Employment Allowance doubling from £5,000 to £10,500. This adjustment will enable eligible employers to hire up to four National Living Wage full-time employees without incurring employer NIC charges.
Support Measures for Small Businesses
The Federation of Small Businesses (FSB) acknowledged the increased Employment Allowance as a positive step, calling it a “pro-jobs prioritisation.” FSB Policy Chair Tina McKenzie praised the decision to raise the Employment Allowance.
Additionally, Reeves’ budget introduced a freeze on the small business multiplier in business rates, targeting small firms across various sectors. This freeze is aimed at assisting businesses facing an inflationary tax hike on premises. McKenzie noted that the budget’s measures, including the extended business rates relief for the retail, hospitality, and leisure sectors, offer some relief for companies in these industries, helping mitigate anticipated tax increases.
However, McKenzie also expressed concerns about challenges facing small and medium enterprises (SMEs) dealing with simultaneous increases in NIC and other employment-related costs, including ongoing government employment law reforms.
She said, “Larger small, and medium-sized, businesses will struggle with the rises on employer national insurance on top of the large costs from the Government’s employment law plans. We’ve been very clear in our warning of the difficulty SMEs will be confronted with in meeting all of these changes at once – and the potential impact on jobs, wages and prices.
“The Budget documents include plans for a small business strategy command paper, which is a welcome signal that ministers appreciate the central role that small businesses play in driving growth and we look forward to working with the Government closely on that.”
‘Creative Steps’ for Alternative Rewards
Matt Russell, CEO of employee benefits technology provider Zest, commented, “The spike in Employer NI contributions may curb salary growth but employers will take creative steps to unlock cost-effective approaches to reward employees beyond simply raising wages. Employee benefits packages are one of the most effective ways that employers can deliver financial support to their workforce, over the last 12 months half (49%) of employers have already increased investment in their benefits package supporting with talent attraction and retention whilst boosting morale and productivity.
“Employees are placing increasing importance on financial support from their employer and aren’t afraid to switch jobs to get the perks that they want – half (47%) now say that a good benefits package is the most important thing they look for in employment. Employers must ensure that not only are they increasing investment in their benefits offering but delivering enhanced value by implementing the support employees are calling for.
“Salary sacrifice is another option employers should be considering to mitigate the impact of rising NI contributions – this approach reduces employee NI payments and benefits both the individual and employer.”
