One of the most controversial measures revealed in the Autumn Budget was an increase to employers’ National Insurance (NI).
Chancellor Rachel Reeves announced that employers’ contributions would increase from 13.8% to 15% from April 2025. The threshold at which businesses begin paying the tax on an employee’s salary will also drop from £9,100 per year to £5,000.
Reeves was in a tight spot. Labour had pledged not to increase taxes for working people, but needed to find more money somehow to fund vital public services and fill an alleged “£22 billion black hole”.
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The government had explicitly promised not to hike income tax, employee NI or VAT, but employer NI contributions were still a route left open to it. Reeves said the policy would raise £25 billion per year by 2029/30.
However, critics of the policy have argued it is foolish to think the employers’ National Insurance hike won’t impact working people. Their argument is that pay rises will be more limited, redundancies will increase, and inflation will rise.
“Signs of trouble are already evident with job vacancies continuing to slide, business confidence in tatters and redundancies on the rise,” said Alice Haine, personal finance analyst at Bestinvest, the online investment platform.
“If employers continue to trim staffing levels, instigate hiring freezes or look to rein in pay rises to offset rising costs, this could have negative consequences on the health of the economy,” she added.
Labour is attempting to limit the policy’s impact on small businesses by broadening existing tax relief measures, known as the employment allowance. “This means 865,000 employers won’t pay any National Insurance at all next year,” Reeves said, “and over one million will pay the same or less than they did previously”.
Who pays National Insurance?
National Insurance is the second-biggest source of revenue for the government after income tax. In the 2022/23 tax year (the most recent figures available), NI contributions raised more than £179 billion, equivalent to 22% of total tax receipts.
Employers foot the biggest part of the NI bill. They paid 61% of the total in 2022/23, versus the 35% paid by employees.
Some self-employed people are also required to pay NI contributions, depending on how high their profits are. Those beneath the threshold and those who are not currently working can choose to pay voluntary contributions to avoid gaps in their NI record (which is used to calculate benefits like the state pension).
How much do employees pay versus employers?
There are different classes of National Insurance, depending on your working status. If you are employed, you will pay Class 1. This is split into primary contributions which are paid by the employee, and secondary contributions which are paid by the employer.
Employee NI contributions
There are different National Insurance rates depending on how much you get paid. An employee who earned £1,000 a week would pay £58.66 per week in National Insurance contributions, as the below table shows:
| Your weekly earnings | Class 1 National Insurance rate | How much you will pay if you earn £1,000 a week |
| £0-£242 | 0% | £0 on the first £242 |
| £242.01 to £967 | 8% | £58 on the next £725 |
| Over £967 | 2% | 66p on the next £33 |
Employer NI contributions
Under current rules, employers start making NI contributions for an employee once their salary hits £175 per week, which is equivalent to £9,100 per year. From April 2025, the threshold will drop to £96 per week, or £5,000 per year.
Currently, contributions are paid at a rate of 13.8% but this will also increase to 15%.
This means employers will go from paying £113.85 to £135.60 per week in National Insurance once the rules change, assuming the employee earns £1,000 per week. That is an increase of around £22 per week, and more than £1,100 per year.
What tax relief can employers claim?
A tax relief measure called the employment allowance allows some employers to reduce their annual National Insurance liability by up to £5,000 in total.
Under current rules, you can only claim this allowance if your annual NI liabilities were less than £100,000 in the previous tax year. In other words, only small businesses are eligible for the allowance.
However, to soften the blow of the Autumn Budget, Reeves announced that this allowance would be increased to £10,500 per year. The £100,000 threshold will also be removed, meaning most businesses or charities will be able to apply.
How will the employer NI changes impact you?
Critics of the NI policy have warned that it could result in lower wage growth, redundancies and higher inflation. All of these outcomes would be bad news for working households. In other words, it is more than just a tax on employers.
Simon Wolfson, chief executive of the UK retailer Next and a Conservative peer, recently told the BBC that his company’s wage bill is set to surge by £70 million as a result of the changes.
This will lead to a cut in the number of employee hours worked, he added. This could take one of two forms – either a reduction to the number of workers or a cutback in the number of hours available to them.
A recent survey from the British Retail Consortium (BRC) supports this narrative. Of the 52 leading retailers surveyed, 56% said they would be reducing employees' hours or overtime. Around half of the respondents also said they are planning to reduce their headcount.
Many businesses (67%) are also planning to hike their prices this year in an attempt to pass higher staffing costs on to consumers, the BRC survey revealed.
“Retailers have worked hard to shield their customers from higher costs, but with slow market growth and margins already stretched thin, it is inevitable that consumers will bear some of the burden,” said Helen Dickinson, chief executive at the BRC.
“The majority of retailers have little choice but to raise prices in response to these increased costs, and food inflation is expected to rise steadily over the year. Local communities may find themselves with sparser high streets and fewer retail jobs available,” she added.
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