Brace Yourself: National Insurance Hike Could Be on the Horizon!

Whispers are doing the rounds that the Chancellor might still be considering increasing the Employer’s National Insurance in the upcoming Budget.

Employers currently pay a 13.8% rate on earnings and employee benefits, which amounted to a total of £107.9 billion in the last tax year. Compared to the £79.1 billion collected before the pandemic, this is a significant 35% rise.

It is worth noting that the National Insurance rates were last hiked in April 2018, when it was bumped up by 1.8% from the previous 12%.

Possibility of Change in Taxes

With less than two months until the Budget, speculations about possible tax hikes have reached their peak. Chancellor Rachel Reeves has consistently been talking about a £22 billion gap in public spending, and the pressure has only increased since the approval of the substantial public sector pay raises made shortly after this Labour government’s victory.

Nevertheless, Reeves has been adamant that the big three taxes—Income Tax, Employer’s National Insurance Contributions and VAT—will not be touched. But this leaves her with limited options to raise tax revenue, especially considering that the current tax burden is at its highest in over 70 years.

National Insurance seems like a possible way for raising funds, although it could conflict with Labour’s growth ambitions and could potentially harm businesses. Darren Jones, Chief Secretary to the Treasury, stated that Labour has promised not to increase the Employee National Insurance rates but continued to remain vague about the employer component.

Expectations for the October Budget

The Treasury is currently exploring various tax options ahead of the Budget on 30 October, including the possibility of raising the employer rate of national insurance from the current 13.8%. However, even a 1% increase is unlikely to generate substantial revenue, with estimates suggesting it might only bring in an extra £1 billion annually.

In the 2023-24 tax year, employers paid £107.9 billion in national insurance contributions, an increase from the £103 billion collected in the previous year. This amount is significantly higher than pre-pandemic levels where the total paid was 35% lower at £79.1 billion.

Employers are also required to pay Class 1A and 1B national insurance on expenses and benefits at a rate of 13.8%. Additionally, Class 1A NI is payable on redundancy payments.

It’s worth noting that the previous government, under Chancellor Jeremy Hunt, reduced the employee NICs by 4% in January and April of this year—a move that cost £20 billion but left the employer rate unchanged.

Conclusion

Labour promised not to make changes to National Insurance rates before the election and Chancellor Reeves continues to do so now. But, considering the limited options at its disposal, many wonder if these promises will hold and if they will see a rise in Employer’s National Insurance contributions.