Rachel Reeves turns screw on employers as NIC contributions hit £114bn – a ten-year high

Chancellor Rachel Reeves is set to increase financial pressure on UK businesses by raising employer National Insurance Contributions (NICs). A new study shows that employer NICs reached £114 billion in 2024, the highest level in over a decade. This comes as the government plans to raise NIC rates again in April, adding further strain to businesses, especially smaller ones already struggling with rising costs and economic uncertainty.

Employer NICs are taxes paid by businesses on their employees’ earnings, funding state benefits like the NHS, pensions, and social security. The amount is calculated as a percentage of employee earnings above a certain threshold, which the government can change.

Research from the Global Payroll Association (GPA) reveals that UK tax receipts for 2024 totaled £849 billion, with businesses paying £114 billion in employer NICs—a 6.8% increase from the previous year. This marks the ninth consecutive annual rise in employer NICs since 2015, highlighting the growing financial burden on businesses.

While employees also paid more in income tax (£252 billion in 2024), employer NICs now make up a significant portion of overall tax receipts, surpassing employee contributions. This reflects the government’s reliance on business taxes to fund public spending, but the rising costs are becoming unsustainable for many employers.

In her October 2024 Budget, Rachel Reeves announced a significant increase in employer NICs. The main rate will rise from 13.8% to 15% starting April 2025, and the earnings threshold for NICs will be lowered from £9,100 to £5,000. These changes aim to raise £25 billion by the end of the current Parliament to address the fiscal deficit and fund public services. However, businesses will face higher staffing costs, potentially leading to job cuts, reduced pay rises, and even closures.

Melanie Pizzey, CEO of the GPA, warned that while large companies might absorb the costs, small businesses will be hit hardest. She emphasized that the increase could force many businesses to cut jobs, freeze pay, or shut down entirely.

Rachel Reeves acknowledged the impact of the tax hikes, stating that businesses may need to absorb some costs through reduced profits and that wage increases might be smaller than expected.

The rise in employer NICs represents a critical challenge for UK businesses, particularly in a volatile economic environment. The government’s ability to balance public service funding with business sustainability will be tested in the coming months.