On 30th October 2024, Chancellor Rachel Reeves delivered the Labour Party’s Autumn Budget, outlining how the Government plans to raise revenue through key changes in public finances related to employment. With the recent Employment Rights Bill already setting the stage for new employment law changes, this Budget focused on public spending policies that directly affect businesses.
Employers’ National Insurance Contributions (NICs)
Employers’ NICs will increase from 13.8% to 15% as of 6 April 2025. The threshold at which employers pay NICs will also be reduced from £9,100 to £5,000, which represents an additional cost of £615 per employee, before accounting for the percentage uplift. This will remain in effect until 5 April 2028, after which the threshold will be adjusted in line with the consumer price index.
To pay for these increases, employers may consider taking the costs from their company profit, increasing costs to consumers, or they may have to look at salary and benefits in the future for employees. This may lead to suppressed wage growth and reduced employment opportunities.
Employment Allowance
To help reduce the impact of these NIC changes on small businesses, it was also announced an increase in the Employment Allowance from £5,000 to £10,500. This allows businesses with employer NIC bills of £100,000 or less in the previous tax year to deduct this amount from their NICs bill. This limit will now be removed, and it should be available to more (non-public sector) employers.
Small businesses make up the majority of employers in the UK, so supporting these companies is key to the Government’s growth plan. The Government hopes this will increase the number of small businesses exempt from employer NICs altogether. In her speech, the Chancellor stated that businesses should be able to employ four full-time workers on the National Living Wage (NLW) without incurring any NICs.
National Living Wage (NLW) and National Minimum Wage (NMW)
It was also announced that the National Living Wage (NLW) for employees aged 21 and over will increase by 6.7%, bringing the hourly rate from £11.44 to £12.21—an increase above inflation. The National Minimum Wage (NMW) for employees aged 18 to 20 will rise from £8.60 per hour to £10.00, marking a 16.3% increase. This change means that, in future, everyone over the age of 18 will have the same NMW. For those aged 16 or 17, the NMW and Apprentice rate will rise from £6.40 per hour to £7.55. It is anticipated that certain sectors will feel the impact of these rate increases more than others.
Income tax
The current income tax bands for employees have been frozen since 2021. These brackets will remain unchanged until April 2028, with the basic rate of 20% applying to earnings over £12,570, the higher rate of 40% starting at £50,270, and the additional rate of 45% applying to earnings of £125,140 and above. Future adjustments are expected to align with inflation, marking a return to progressive tax updates.
Conclusion
The main focus in the Budget was on tackling economic inactivity with the establishment of ‘Skills England’, a new body aimed at delivering the Government’s plan to ‘Make Work Pay’. Skills England focusses on working in partnership with government departments, employers, unions, education and training providers, and it has begun work to identify local and national skills gaps. For further information on this, please see our article.
Following the recent unveiling of the Employment Rights Bill, the Government has also indicated plans to strengthen protections against unfair dismissal, combat bullying in the workplace, and to increase access to maternity and paternity leave. The Bill introduces positive changes to the National Living Wage (NLW), parental rights, statutory sick pay, and more, which are fantastic news for the worker. However, the Autumn Budget does come at a significant cost to employers. For further information on this, please see our article.
The impact of wage rises will be sharply felt in sectors such as retail and hospitality, where the National Minimum Wage (NMW) is widely paid. Many employers in these sectors may struggle to maintain pay differentials, with managers earning only a modest amount more than the staff they supervise, potentially leading to recruitment and retention challenges. Employers who currently pay above the NMW/NLW may no longer be able to afford to do so.
Later this autumn, the Government will publish the “Get Britain Working” white paper, aimed at helping unemployed individuals return to work.
How we can help
If you require any further guidance on how the Autumn Budget 2024 will impact you or your business, please contact a member of our Employment Team at EmploymentTeam@salaw.com and we would be glad to assist.
Please note, we are not able to provide financial or tax advice.
