Businesses hit with £25bn national insurance hike

Rachel Reeves has increased employers’ national insurance contributions (NICs) by £25bn, in Labour’s biggest tax-raising measure to date. 

Employers' NI is currently charged at 13.8 per cent on a worker’s earnings above £9,100 a year. The rate will be increased to 15 per cent from April 2025 and the level at which employers start paying NI for each employee will be slashed to £5,000 a year. This is expected to raise £25bn by the end of the forecast period. 

“I know this is a difficult choice,” Reeves said. “I do not take this decision lightly. We are asking businesses to contribute more…but in the circumstances I have inherited, it is the right choice to make.”

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the tax hike could lead to lower salary increases. “Heaping extra costs on employers, alongside a planned uplift in the minimum wage will likely result in lower wage increases over the longer term,” she said.

Jon Greer, head of retirement policy at Quilter, calculated that if an employee’s gross pay is £30,000 then an employer will pay £865.80 more in NI costs. “For many employers, particularly those operating on tight margins, this increase in NI is likely to prompt a re-evaluation of salary structures and potential pay rises,” he said. Salary sacrifice schemes, where employees voluntarily reduce their taxable income in exchange for benefits, could become “increasingly attractive”, he argued. 

Other changes did not materialise in the Budget, however. Reeves has not axed the NI exemption on employer pension contributions, for example. She has also introduced support for small businesses, increasing the employment allowance – a government scheme that allows some employers to reduce their contributions –   from £5,000 to £10,500 and scrapping the £100,000 threshold.