Workers will primarily bear the financial burden of the government’s planned increase in employers’ National Insurance (NI) contributions, according to the Office for Budget Responsibility (OBR). During the recent Budget announcement, Chancellor Rachel Reeves revealed that starting in April, employers will be required to pay NI at a rate of 15% on salaries exceeding £5,000, up from the current rate of 13.8% on salaries above £9,100.
The OBR has assessed that approximately 75% of the impact from this increase will be felt by employees, as employers may respond to higher wage bills by curtailing pay rises and reducing hiring. Professor David Miles, an OBR official, indicated that this shift could disproportionately affect lower-paid workers.
During a session with the Treasury Select Committee, Professor Miles stated that the OBR estimated employers would absorb only about a quarter of the impact in terms of reduced profits. “On the face of it, it’s very plausible” that low-paid workers will be hit hardest by this change, he remarked, noting that the reduction in the threshold for employers paying the tax contributes to this dynamic.
Despite these concerns, Professor Miles mentioned that the personal impact on workers could be somewhat mitigated by the recent increase in minimum wages included in the Budget.
The OBR’s findings have sparked renewed debate regarding Labour’s manifesto pledge to avoid tax increases for “working people” following its first Budget in 14 years. James Smith, research director at the Resolution Foundation think tank, emphasized that the NI changes represent “definitely a tax on working people.” He warned that while the immediate effect might not be visible in paychecks, it would eventually lead to lower wages across the board.
Chancellor Rachel Reeves defended the decision to increase taxes for employers, acknowledging the criticism that has followed her announcement. In an interview with the BBC, she asserted that the funds raised would help establish a “firm footing” for public finances.
This decision has drawn significant backlash from various sectors, particularly from businesses and healthcare providers. General practitioners (GPs) have voiced concerns that the increased NI contributions could negatively impact services available to patients.
As the government prepares for the implementation of these changes, the potential ramifications for workers and the broader economy remain a focal point of discussion among policymakers and industry leaders alike.
