Rachel Reeves reveals National Insurance hike in 2024 Budget
National Insurance (NI) contributions for employers are set to rise by 1.2%.
Employers currently pay NI at 13.8% on all workers' earnings over £175 per week. Chancellor Rachel Reeves has announced that this rate will increase to 15% when the new tax year begins in April 2025.
Additionally, the Chancellor announced the threshold for paying contributions will fall from £9,100 per year to £5,000.
Think tanks have warned the move could impact take-home pay if employers adjust salaries to cover the higher tax expense.
This comes despite Labour's election campaign pledge not to raise taxes for "working people".
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Rachel Reeves said it is "the right choice to make".
She said: "But any responsible Chancellor would need to take difficult decisions today. To raise the revenues required to fund our public services. And to restore economic stability. So in today's Budget, I am announcing an increase in employers' national insurance contributions.
"We will increase the rate of employers' national insurance by 1.2 percentage points, to 15%, from April 2025. And we will reduce the secondary threshold - the level at which employers start paying national insurance on each employee's salary - from £9,100 per year to £5,000. This will raise £25 billion per year by the end of the forecast period. I know that this is a difficult choice. I do not take this decision lightly.
"We are asking business to contribute more, and I know that there will be impacts of this measure felt beyond businesses, too as the OBR have set out today. But in the circumstances that I have inherited, it is the right choice to make.
"Successful businesses depend on successful schools. Healthy businesses depend on a healthy NHS. And a strong economy depends on strong public finances. If the party opposite chooses to oppose this choice, then they are choosing more austerity, more chaos and more instability. That is the choice our country faces too."
Brian Byrnes, head of personal finance at Moneybox warned the "unintended consequences of this move could be significant".
He explained: “With employers shouldering more of the National Insurance burden, the worry is they could simply pass these costs on to their employees. With a higher cost per head, we could also see some employers choosing to reduce other benefits, such as wage increases or even pension contribution matching.
"Steps will need to be taken by the Government to ensure the delivery of this measure does not end up being counter-intuitive to Labour’s commitment to building wealth for the future.
"There is a considerable retirement challenge in the UK, with the vast majority of people not saving adequately for later life. With the Pension Review ongoing, we must focus on the challenge of getting people to the pension pot amounts they need for a comfortable retirement.”
Hannah English, head of DC corporate at Hymans Robertson added: "The change announced by the Chancellor may be the final straw for those employers that have upheld their generous pension contributions despite difficult economic conditions. In this case, such scheme contribution structures may be increasingly get overhauled.”
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