NICs rise expected to hit workers hard |
Rachel Reeves has announced significant changes to National Insurance (NI) contributions, reducing the threshold for employers from £9,100 to £5,000 and increasing the rate by 1.2% to 15%. The move, part of a £40bn tax hike package, is expected to lead to a decrease in hiring and significantly impact living standards. Shevaun Haviland, director-general of the British Chambers of Commerce, said the increase in NICs, alongside a 6.7% rise in the national living wage, will stymie investment and slow recruitment. Elsewhere, Roger Barker, director of policy at the Institute of Directors, warned that the Budget may negatively impact business confidence, saying: "The risk is that this will exert a negative impact on business confidence, with worrying implications for the economy's future growth trajectory." In a concession to small businesses, the Chancellor doubled to £10,500 the employment allowance that businesses can claim back against national insurance costs. This was welcomed by Tina McKenzie, of the Federation of Small Businesses, but she said small firms will struggle with the increase in NICs “on top of the large costs from the government's employment law plans.” In perhaps the biggest surprise of the Budget, Reeves announced she would not extend a freeze on the amount of money that people can earn tax-free beyond 2028-2029. The policy was first implemented by the former Conservative government in March 2021 when the threshold was frozen until 2026. It was extended two years ago until the 2028/29 tax year. From 2028/29, these thresholds will once again rise in line with inflation, giving workers more headroom for salary growth before they hit the next income tax band.