November 2, 2024
How employer national insurance changes will impact your pay #UKFinance

How employer national insurance changes will impact your pay #UKFinance

CashNews.co

Workers will be paid less as a result of the increase in national insurance contributions from employers, chancellor Rachel Reeves has admitted, with experts warning about a prolonged pay downturn. Forecasts show that in 2028, weekly earnings will be just £13 higher than they were in 2008.

The chancellor said she recognised “there will be consequences” to her first budget, which includes £40bn in tax rises, more than half of which come from increasing tax on businesses.

The chancellor on Wednesday unveiled plans to increase employer national insurance contributions (NICs) by £25bn.

Employers’ national insurance contributions will rise by 1.2 percentage points to 15% from April 2025. The threshold at which companies start to pay contributions on an employee’s salary will also be lowered from from £9,100 per year to £5,000.

Asked about increasing NICs for employers, the chancellor told BBC Breakfast: “I said that it will have consequences.

“It will mean that businesses will have to absorb some of this through profits, and it is likely to mean that wage increases might be slightly less than they otherwise would have been.”

Economics experts branded the increase a “tax on working people” which will “definitely” show up in their wages.

Speaking to the BBC Today programme, Paul Johnson, director of the Institute for Fiscal Studies (IFS), said: “My employer might write the cheque for the national insurance contributions, but I’ll effectively be paying for most of it because it’ll cost my employer more to employ me, and so my wages will be less than they otherwise would have been.”

He warned that businesses will pass most costs onto employees, which could result in fewer pay rises and reduced hiring.

Read more: How the UK budget could impact first-time buyers, small businesses and economic growth

James Smith, research director at the Resolution Foundation economic think tank, said the employers’ national insurance tax increase “will definitely show up in wages”.

He added: “This is definitely a tax on working people, let’s be very clear about that.

“Even if it doesn’t show up in pay packets from day one, it will eventually feed through to lower wages.”

The combination of higher inflation and weaker growth stemming from increased taxes on employment, means that real pay is set to stagnate again in the middle of this parliament. As a result, by 2028 real wages are expected to have grown by just over £10 a week over the past two decades.

“This will extend the UK’s long pay stagnation: in 2028, average weekly earnings are set to be just £13 higher than they were in 2008 (adjusted for CPI inflation),” the Resolution Foundation said.

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