Chancellor Rachel Reeves unveiled Labour’s first budget since being elected to government; with a focus on slashing national debt, boosting the UK economy and protections for working Brits – including a hike of 1.2 per cent on National Insurance for employers.
Labour have said that with the threshold lowered to £5,000 for NI and changes to employment allowance there will be more room in the budget to improve education and the NHS, saying she is ‘asking businesses to help out’.
The Chancellor announced in the commons that the rate of National Insurance paid by firms will rise from 13.8 per cent to 15 per cent from April 2025. The earnings threshold for when employers start paying National Insurance will also be lowered from £9,100 per Anum. The employment allowance will increase from £5,000 to £10,5000.
This means as well as paying a higher rate of National Insurance, businesses will also start to pay it on a higher portion of employee salaries.
She said: “I know that this is a difficult choice. I do not take this decision lightly. We are asking businesses to contribute more, and I know that there will be impacts of this measure felt beyond businesses too, as the OBR has set out today.”
The Chancellor is looking to boost funding for public services including the NHS. A government source previously told Sky News: “There is a universal consensus that the NHS needs more money, this means asking businesses to help.”
However there are concerns that the employers NI rise will have a ‘negative’ impact on working people and the businesses that employ them.
Hamilton Forrest, tax expert and Partner at Fladgate commented:
“The increase in employers’ NIC will undoubtedly negatively affect working people. This could be in the shape of lower wages being offered, less roles being made available or even redundancies as already cash-strapped employers will need to make cost savings to cover the increase.”
Others have said there is ‘little cheer’ in the budget for their clients, and saying that businesses who ‘add huge value to the economy’ will suffer the impact of an NI rise alongside ‘hardworking family businesses’.
Basil Dixon, Partner at Payne Hicks Beach, commenting on the Budget says:
“Our clients will find little to cheer them in the Budget. Not only has the Chancellor confirmed increases to CGT and SDLT and the imposition of VAT on school fees (no surprises there) but she has also announced material changes to the IHT regime for agricultural property and business property. Together with increases to Employer’s NICs and changes to employment rules these are going to be hugely detrimental to hard working family businesses across the country.
“These are businesses that add huge value to the economy and they are being taken for granted. Non-doms do not seem to have fared any better with the Chancellor appearing not to have taken the ample opportunity offered to her to amend her plans to take into account valid and widely held concerns. For a Government that wants to prioritise growth and investment it very much remains to be seen if the plans announced today will have the effect they desire.
“We will be working with our clients to help them adjust to the new rules but the challenges they face are real and their effect may well prove to be detrimental to the country as a whole over the long-term. Much more to follow once we have the detail.”
