What does a National Insurance rise in the Autumn 2024 Budget mean for you?

Rachel Reeves has confirmed she will raise employers’ National Insurance contributions in her first Budget today.

While it would raise a significant chunk of cash for the Treasury, there are plenty of figures criticising the decision – from Tories to small business owners to charities.

It raises questions about whether Labour has broken a pledge in its manifesto not to raise National Insurance.

Chancellor Reeves said: ‘I am announcing an increase in Employers’ National Insurance Contributions.

‘We will increase the rate of Employers’ National Insurance by 1.2 percentage points, to 15%, from April 2025. And we will reduce the Secondary Threshold – the level at which employers start paying national insurance on each employee’s salary – from £9,100 per year to £5,000.

‘This will raise £25bn per year by the end of the forecast period. I know that this is a difficult choice. I do not take this decision lightly.’

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Is National Insurance being increased?

No. Instead the fund is falling on responsibility of employers, who will now have to stump up more.

Chancellor Reeves said: ‘I say to working people: I will not increase your National Insurance, your VAT, or your income tax.

‘Working people will not see higher taxes in their payslips as a result of the choices I make today. That is a promise made – and a promise fulfilled.’

Martin Lewis observed: ‘She isn’t reversing the 2% Tory National Insurance cut to employees, but shifting it to employers.’

Sir Keir Starmer and his ministers have argued that they only ever promised not to raise taxes on ‘working people’, suggesting that this applied to employees rather than employers.

But Paul Johnson, the director of think tank the Institute for Fiscal Studies (IFS), has said the increase in employer national insurance contributions (NICs) will inevitably affect employees too.

How much National Insurance do you currently pay?

That depends on a lot of things, including whether you are an employee, an employer, or self-employed.

First of all, there are four classes that decide what your contributions count towards. Most people are in Class 1, which is for employees, and Classes 2 and 4 are for self-employed people. Class 3 applies to voluntary contributions.

To complicate things further, there are 16 different categories within Class 1 to decide who pays what, each designated a different letter of the alphabet.

Let’s first look at NI for employees, which Labour has said it will not change.

You don’t pay national insurance until you’re earning £1,048 a month, and everything above that is taxed at either 2% or 8% for most people.

As for employers – before this Budget, they paid either nothing or 13.8% towards their workers’ NI. But there’s a strong chance this may change.

Why is NI for employers going up?

Rachel Reeves said tough decisions must be made to help fill a £22 billion black hole in the public finances which Labour says was found during a post-election audit.

After ruling out several big tax levers in the election manifesto earlier this year, the Treasury was limited in the steps it could take.

Paul Johnson of the IFS argues that either way, the measure will ultimately hurt workers.

He told Sky News: ‘Most of the theory and the evidence suggests that most of the increase will be felt by employees in lower wages, probably, but possibly in the longer term, fewer jobs than there otherwise would have been.

‘I mean, this is very, very similar in the long term to an increase in employee national insurance contributions.’

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