Reeves told the House of Commons that businesses face a 1.2% tax hike and the salary threshold per employee for when they pay it will reduce from £9,100 to £5,000 per year.
While those two changes will see an increase in contributions, the Chancellor said the Labour Party wants to protect small business, so it will be increasing the Employment Allowance to £10,500.
As it stands, the limit small businesses can apply for is £5,000. The programme, which allows eligible businesses to claim back money on their NIC bill, requires the firm to have a National Insurance liability of less than £100,000.
But, in Labour’s first Budget for 14 years, Reeves confirmed this would be scrapped, meaning “865,000 employers won’t need to pay any NICs next year”, the Chancellor said.
This NIC hike for employers was one of many tax increases forecast in the build-up to the Autumn Budget, which came to fruition in Parliament today (30 October).
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The Labour Party insisted it would keep its manifesto pledge to not increase taxes for working people, but the knock-on effect of the change could hit workers’ pension pots, according to some experts.
‘Terrible news for hopes to tackle undersaving crisis’
Steve Webb, partner at pension consultant LCP, said: “The hike in employer pension contributions is terrible news for hopes of action to tackle Britain’s pension undersaving crisis. Even the Government accepts that millions of people are not saving enough for a decent retirement, and there is no doubt that part of the answer is workers and their employers contributing more.”
Webb added: “But with employers already having to absorb a big increase in payroll costs, it seems highly unlikely that the Government will try to ‘double dip’ and ask employers to pay more for pensions any time soon.
“Even the modest improvements to automatic enrolment for which legislation has already been passed are at risk of being stuck in the slow lane. This is a worrying day for anyone who cares about the adequacy of pension saving in the UK.”
While workers and businesses will wrestle with the prospect of reduction in pensions and even salaries, Seb Maley, CEO of Qdos, said that opportunities could increase for others.
Maley said: “Employers – especially small businesses – may feel aggrieved at an increase to employers’ National Insurance.
“But freelancers and contractors can be more positive about this tax change. The cost of employing people will increase, which could lead to a surge in demand for freelancers and contractors engaged off-payroll. Given how many businesses shifted contract workers on the payroll in response to IR35 reform, an employers’ NI hike may prove to be the push they needed to rethink this stance. It could become a catalyst for contract opportunities.
“This brings IR35 and the off-payroll rules into sharp focus. Businesses engaging contractors and the wider self-employed must prioritise their compliance and ensure these workers are engaged under the correct employment status. Falling foul of these rules can result in staggering tax liabilities, which could wipe out potential savings made on employers’ NI.”
Maley added: “The move to clamp down on non-compliant umbrella companies that lure in unsuspecting workers – only to leave them with devastating tax bills – has been a big discussion point for some time.
“From 2026, making recruiters and businesses responsible for ensuring the correct PAYE deductions is designed to help protect the 700,000 or so people working via these intermediaries. In some ways, the Government is asking the wider supply chain to police the compliance of umbrella companies and carry the can from a tax perspective if tax avoidance has taken place.”
