Budget 2024: Impact of Employer NI Increase on Businesses and Employees
Chancellor Rachel Reeves will present her party's Budget to the House of Commons in just two days, on October 30th. Following Keir Starmer’s ominous warning of a “painful” autumn budget, rumors have been swirling about what Labour has in store. One of the more concerning potential changes—and the subject of today’s article—is a proposed increase in employer National Insurance (NI) contributions.
What is NI, and who pays it? Well, probably you. If you’re over 16, under 66, and earning more than £242 per week, you’re required to make NI contributions. These qualify you for, among other benefits, your precious state pension. These contributions account for about a 6% deduction from an employee’s salary; yet, according to the Institute for Fiscal Studies, they only make up 35% of the total NI revenue.
Most NI contributions are made by employers, who pay 13.8% on earnings over £175 per week, making up a whopping 63% of NI takings between 2023 and 2024. According to HMRC data, a 1% increase in these contributions could raise a potential £8.5 billion in the upcoming tax year. This fact was no doubt discussed during internal conversations as Labour prepared their budget, but what could an increase mean for job seekers, employers, and employees?
Businesses with large headcounts that rely on people power will be hit hardest, with sectors like hospitality affected disproportionately. Companies will likely seek to offset these extra costs in several ways. Experts predict we’ll see scaled-down pension contributions and benefits, layoffs, a slowdown in recruitment, and, of course, an increase in the cost of goods and services.
While this all feels like a bit of COVID-19 déjà vu, there’s one key difference: we’re all still allowed outside, and more or less, have to get on with it. So, what can people-powered businesses do to meet demands while managing their increased overhead?
We predict an increase in demand for temporary staffing solutions. By partnering with external providers, companies can hand off the messy stuff like NI to a third party, and be more flexible with their staffing needs, adjusting headcount on an ad-hoc basis and. This approach will help eliminate unnecessary overhead while ensuring they can meet existing requirements.
At Conifer, we’ve begun internal discussions around Transfer of Undertakings (TUPE) agreements with our clients. We believe this could help companies mitigate the increase in employment costs while still retaining key members of their teams who may not be needed daily. Employees who would otherwise be let go could instead work through the agency, serving both their original employer and additional clients.
Until Wednesday, we can’t know for certain what Reeves’ budget will hold, but one thing is clear: change is coming, and we will all need to adapt to meet the challenges ahead.