- Employer National Insurance will rise from 13.8% to 15%
- Threshold at which employers pay National Insurance drops from £9,100 to £5,000
- Minimum wage increases to £12.21 an hour – a 6.7% rise
- Cost of employing someone on minimum wage could increase by nearly £2,400
- Employment Allowance increased from £5,000 to £10,5000, saving many businesses on their National Insurance bill
- Employees are spared extension to income tax threshold freeze beyond 2028
Laura Suter, director of personal finance at AJ Bell, comments:
“It’s a Budget to batter businesses, with big hikes to payroll costs coming from National Insurance increases and a higher minimum wage. Put together it means that it will cost a business almost £2,400 more to employ someone on the minimum wage working 35 hours per week* from April next year.
“The increase to employer National Insurance from 13.8% to 15% will add dramatically to employer’s staffing bills. But the Chancellor’s plans to slash the starting threshold where employers pay National Insurance will add on far more on top. It means that once an employee earns just £5,000 an employer will have to pay NI on that money, at a rate of 15%. For an employee earning £30,000 that will add an extra £865 onto employer bills a year.
“The smallest businesses will be protected from some of these cost increases, as the Employment Allowance will more than double from £5,000 a year – meaning they can claim back up to £10,500 a year on their National Insurance bill. This will also be extended to all businesses, providing some respite for employers. But regardless of this tax break, the move will raise huge sums for the Government – netting them £26bn by the 2029/30 tax year. However, £5bn of that will come from the public sector wage bill, offsetting some of the impact.
“While these measures are a cost increase for many businesses, it will inevitably hit the British public in their pockets as companies pass on those costs. Whether that’s lower pay rises for staff, cuts to future hiring or businesses passing on cost increases to customers.
Increased cost of hiring someone on minimum wage:
*Combines the increase in minimum wage to £12.22 and the increase in National Insurance from April 2025.
Income Tax
“Ahead of today’s Budget it was widely trailed that Labour would extend the freeze on income tax bands, which would have cost workers hundreds of pounds per year by the end of the freeze. But instead it has saved employees from another stealth increase in their tax bills by ending the freeze in 2028/29 as per the previous plan under the Conservatives.
“However, there’s not huge reason to rejoice as we’re still left with the legacy of the deep freeze on income tax bands. That six years of frozen thresholds can never be reclaimed, meaning that we’ve all missed out on chunky increases to tax bands during a period of high inflation and wage growth.”
