National Insurance contributions what will change

All eyes are on the busget and what will happen with National Insurance contributions

A potential rise in employer National Insurance contributions (NICs) in the upcoming Autumn Budget has triggered significant backlash, with critics claiming that such a move would break Labour’s manifesto promises, hinder hiring, and restrict pay increases for businesses. Here, we explore the possible consequences of an employer National Insurance contributions hike.

Sticking to Commitments
Prime Minister Keir Starmer and Chancellor Rachel Reeves have not ruled out the possibility of increasing employer National Insurance contributions as part of their efforts to address the budget deficit inherited from the previous government.

In a recent speech, Reeves emphasised: “We will stick to the commitments in our manifesto. However, we face a £22 billion shortfall that we didn’t anticipate before the election, and it will persist throughout the forecast period.

“We need to bridge the gap between government spending and tax revenues. But we remain committed to honouring our manifesto promises, including not raising taxes on working people.”

Breaking Promises
Predictably, Conservative politicians, including former Chancellor Jeremy Hunt, were quick to argue that raising employer National Insurance contributions would breach Labour’s manifesto pledges.

Paul Johnson, Director of the Institute for Fiscal Studies (IFS), echoed these concerns, stating: “This would be a straightforward breach of a manifesto promise. Labour’s manifesto clearly states, ‘We will not raise national insurance rates.’ It does not limit this to employee National Insurance contributions.”

Johnson had previously warned during the election campaign that both major parties were not being fully transparent about the state of the nation’s finances. The IFS estimates the Chancellor must address a £25 billion budget gap to meet Labour’s spending commitments.

Business Outcry
More troubling for the Chancellor, however, is the strong opposition from UK business groups, who have united in condemning the proposed increase.

Rain Newton-Smith, CEO of the Confederation of British Industry, said that raising National Insurance contributions would be a “difficult move” for employers, making it costlier to hire and “harder for businesses to create jobs and drive the growth needed to fund public services.”

Craig Beaumont, Executive Director of the Federation of Small Businesses, noted that such a move would “increase the cost of maintaining every job in local communities.”

Kate Nicholls, CEO of UKHospitality, warned that sectors like hospitality, where labour costs are the largest expense, would be particularly affected by a NICs rise.

Stifling Growth
Alex Veitch, Policy Director at the British Chambers of Commerce (BCC), stated: “The Chancellor faces tough fiscal decisions, but increasing employer NICs would further burden businesses.”

He added: “Most UK companies are small, family-run businesses, crucial to local economies. In an already stretched economy, raising employer NICs would stifle growth and reduce investment in staff.”

Veitch urged that any tax increases be paired with measures to incentivize investment for smaller businesses, such as a functional R&D Tax Credit scheme and retaining the current Annual Investment Allowance.

A Call for Honesty
On the other hand, Chancellor Reeves received support from former Bank of England Governor Mervyn King, who advised against further borrowing.

In an open letter published in The Independent, Lord King wrote: “Be straightforward and honest with the public. Avoid using slogans like ‘borrowing for investment.’ Fiscal sustainability requires tax revenues that reduce the debt-to-GDP ratio steadily.”

He suggested it may be wise to admit past mistakes and restore NICs to previous levels, adding: “You might be surprised by how many people would appreciate such honesty; it’s better to address this now than right before the next election.”

As the count down continues to the budget if you need to discuss what this means for your or your business then please reach out to a member of the team

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