Labour Chancellor Rachel Reeves increases employer national insurance contributions by 1.2%

During her first Budget speech, Labour Chancellor Rachel Reeves admitted she was making a “difficult choice” to increase employer’s national insurance contributions they are charged on employees salaries by 1.2%.

Labour Chancellor Rachel Reeves announced a 1.2% increase in employer's national insurance contributions during her first Budget speech, a "difficult choice" that will raise £25 billion.

This measure, to be implemented in the 2025/2026 tax year, will see employers adjust their financial plans accordingly. However, some businesses will be exempt from this change.

To protect small businesses, Reeves increased the allowance they can use before being charged this national insurance rate, doubling it from £5,000 to £10,500. This move will exempt 865,000 employers from paying national insurance next year, while a million will pay the same or less than before.

According to the Chancellor, this will enable small businesses to hire four full-time workers at the new national minimum wage, which she also announced.

Currently, employers pay Class 1A and 1B National Insurance rates on expenses, lump sums, and benefits provided to their employees.

This rate, set at 13.8% from April 2024 to April 2025, will increase to 15% next April. The BBC reports that this additional revenue will be allocated specifically to NHS funding.

Experts anticipated that Reeves would lower the threshold and increase the rate by 2%, generating £20 billion as part of the Budget's largest revenue-raising initiative. Notably, Reeves did not introduce a levy on pension contributions for employers, despite early speculations.

Nevertheless, the announced changes will impact businesses nationwide. Prime Minister Sir Keir Starmer acknowledged these "tough decisions" but emphasized that only essential "painful" steps were taken to help the Labour government restore the NHS.

National Insurance is the government's second-largest income source, after income tax. It applies to employees, self-employed individuals, and employers. Labour's manifesto pledged not to raise taxes for working people, leading to widespread speculation about business taxes.

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