Business

Workers will end up paying the price

£25 billion national insurance tax bill for business will filter through to employees’ pay packets

Chancellor Rachel Reeves raised taxes by £41 billion at the Budget in order to pay for investment in public services
Chancellor Rachel Reeves want to recoup £25 billion in employers' national insurance contributions . . . but it's the front-line worker who will likely pay the price (Lucy North/PA)
By Gary McDonald

The very notion that Rachel Reeves’ first Budget isn’t a kick in the teeth to ordinary workers here is economic fantasy.

Keen to plug a hole in the public finances and allow for investment in public services, the Chancellor has raised taxes by an eye-watering £40 billion - an even bigger number than that which was widely leaked days in advance of her one hour and 20 minute statement from the despatch box.

The bulk of that tax take (around £25 billion) will come from employers, who are staring at a 1.2 percentage point increase for national insurance contributions to 15% from April 2025.

The Budget - As it happened

And rest assured it’ll be recoup in some shape or form from the wage packets of those on the shop, office or factory floor, who’ll bear the brunt as businesses try to balance the books and remain competitive.

National insurance contributions, which are the UK’s second-biggest tax behind income tax, are paid by employees and self-employed workers on their earnings and profits, and by employers on top of the wages they pay out.

And because businesses will see their costs spiral (they’ve also a 6.7% rise in the national minimum wage to £12.21 an hour to contend with), workers are envisaging lower wages, reduced bonuses and benefits, and fewer job opportunities (indeed recruiters are already preparing to slow down hiring as a result of the measure).

Remember, too, that Northern Ireland’s economy is largely built on the back of SMEs, so on a per capita basis the pain will be felt more acutely in Belfast than in Brighton, Bridgend or Brechin.

There’s a real fear too that businesses could turn to their employee pension schemes as a way to restrict staff benefits and shore up more cash. They’ll believe they will have to recoup the savings made on this relief from somewhere.

In the longest Chancellor’s statement in many years, Ms Reeves also detailed increases to capital gains tax and private school fees, said she will maintain the freeze on fuel duty which would have meant a 7p per litre rise at the pumps (that did come as a surprise), pledged to cut the duty on draft beer (a penny off a pint, hoorah) and abolished the controversial “non-dom” tax regime.

The air passenger duty rise will add up to £2 to the cost of an economy ticket for a short-haul flight
The air passenger duty rise will add up to £2 to the cost of an economy ticket for a short-haul flight (Steve Parsons/PA)

And in another blow to business and leisure travellers, she also lumped an extra £2 on air passenger duty for an economy class short-haul flight, insisting that APD has not kept up with inflation in recent years and required an adjustment (if you are of a certain financial disposition and prefer to fly by private jet, the duty soars by a further 50% - equivalent to £450 per passenger).

The Chancellor insisted her statement is just the starting point in restoring stability and “to fix the foundations and deliver change through responsible leadership in the national interest.”

Just don’t tell the worker - or the frequent flyer.