Business owners will do the ‘heavy lifting’ as Labour hiked taxes by £40 billion in its first budget since 2010 to raise money for the NHS and public services.
As part of the tax hike Chancellor Rachel Reeves, giving the first ever UK Budget by a woman, announced that employers’ national insurance contributions would be increased by 1.2 per cent to 15 per cent from April next year. The government said it would also reduce the threshold on which NI is paid from £9,100 to £5,000. In total this will raise £25 billion a year to put in the Government’s coffers.
Employers will also be hit by an increase in the minimum wage which will rise by 6.7 per cent to £12.21 an hour. According to research by finance platform AJ Bell that could mean that the cost of employing someone on minimum wage will increase by nearly £2,400.
There was some better news as the Employment Allowance will more than double from £5,000 a year. That means businesses can claim back up to £10,500 a year on their National Insurance bill.
Laura Suter, director of personal finance at AJ Bell, said: “It’s a Budget to batter businesses, with big hikes to payroll costs coming from National Insurance increases and a higher minimum wage. 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.”
She warned that companies will look to pass on these costs potentially through lower pay rises for staff, cuts to future hiring or cost increases to customers.
Myron Jobson, senior personal finance analyst at interactive investor described the Halloween Budget as ‘ghoulish’ for employers. “They will do the majority of the heavy lifting. The reduction of the NI threshold was an unexpected blow to businesses. The measures are a bitter pill to swallow for businesses and come a year and a half after corporation tax rose from 19% to 25,” he said.
“The increase in employer national insurance could have a ‘knock-on’ effect on wages offered by businesses and even increase the cost of the goods and services they offer to mitigate the higher cost burden. This could encourage employers to lean on the existing salary sacrifice regime, which is a win-win benefit that allows workers to lower their taxable income enough and allows employers to reduce their National Insurance tax burden.”
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