National Insurance: Firms to pay more than half of Budget tax rises

More than half of the tax rises in the Budget will be paid for by businesses, with a hike in the amount employers pay in National Insurance to generate £25bn.

Chancellor Rachel Reeves has decided firms will bear the brunt of her £40bn total tax rise by increasing the National Insurance rate as well as reducing the threshold that employers start paying it at.

Smaller businesses were offered some exemptions or relief, but businesses overall face having to pay higher minimum wages, higher business rates, as well as the cost of adapting to new workers’ rights under new laws.

Reeves said the rise in National Insurance hike was a “difficult”, but right choice in order to fund public services.

Ahead of the Budget, businesses, particularly smaller ones, warned such extra costs could leave them less spare cash to hire staff or offer pay rises – and ultimately impact the government’s goal of growing the UK economy.

But Reeves said the “only way” to drive growth was through investment and warned “there are no shortcuts”.

“We are asking business to contribute more,” said Reeves. “I know that there will be impacts of this measure felt beyond businesses.”

Businesses come in all shapes and sizes, meaning the impact of the choices made by the chancellor in her Budget will affect them differently.

Kate Nicholls, chief executive of UK Hospitality, said the tax rises would be a “brake on growth” for the UK.

“Businesses on paper-thin margins are already grappling with big increases in employment costs – we are seeing jobs and hours cut, investment slashed and business viability undermined as well as prices going up,” she said.

• National Insurance: The rate that employers pay in contributions will rise from 13.8% to 15% on a worker’s earnings above £175 from April. The threshold at which employers start paying the tax on each employee’s salary will be reduced from £9,100 per year to £5,000. However, the chancellor said she would extend the Employers Allowance – the amount employers can claim back from their National Insurance bill – from £5,000 to £10,500.

• Minimum wage: The minimum wage for over 21s, known officially as the National Living Wage, will rise from £11.44 to £12.21 from April 2025. For 18 to 20-year-olds, the minimum wage will rise from £8.60 to £10. Apprentices will see pay jump from £6.40 to £7.55 an hour.

• Business rates: The current 75% discount to rates, due to expire in April 2025, will be replaced by a discount of 40%, up to a maximum of £110,000. Business rates are charged on most non-domestic properties such as shops, offices, pubs and factories. It still means that many businesses will see their business rates nearly double.

• Workers’ rights: Plans to upgrade workers’ rights will cost businesses up to £5bn a year to implement, according to the government’s own analysis. The new measures will have a disproportionate impact on smaller businesses.

The government has pledged to be “pro-business” and has put growing the UK economy, in order to boost living standards, as its main goal.

But businesses have warned placing the tax burden on them will make investing, hiring staff and creating jobs, harder – and ultimately hit growth.

There are also concerns how tax rises on businesses can affect the workers they employ.

In some cases, companies could pass on the increased costs they face through higher prices to customers, however, workers’ wage rises could be restricted as employers look for savings.

The rise in National Insurance could also have an impact on other tax revenues, for instance if it results in smaller wage rises. If businesses absorb the extra costs, profits could be lower and the amount they pay in corporation tax could be less.

Big, multinational corporations, are likely to be able to take on and absorb the extra costs, but smaller, independent companies, are to be hit harder by tax rises.