Chancellor considers hike in employer national insurance

A senior Treasury minister has hinted that the Chancellor has not ruled out options for an increase in the 13.8% rate of employers’ national insurance at the Budget

Under the current rate of 13.8% on earnings and employee benefits, employers paid £107.9bn in the last tax year, up an eye-watering 35% from £79.1bn pre-pandemic. Employer NI last increased 1.8% from a 12% rate in April 2018.

The national insurance secondary threshold is currently frozen at £9,100 until April 2028 but this could be adjusted, while higher rate earners could also be targeted with a review of the upper earnings limit and Class 4 upper profits limit.

With less than two months until the Budget, speculation about potential tax rises is hotting up as the Chancellor Rachel Reeves repeatedly warns she has identified a £22bn shortfall in public spending which needs to be plugged.

Public finances are also under pressure after substantial public sector pay rises were signed off within weeks of Labour winning the general election.

Reeves has repeatedly said both during the election campaign and last month that the big three taxes of income tax, employee national insurance contributions and VAT will not be increased under a Labour government.

This leaves her little leeway to raise substantial tax revenue, particularly as the tax burden is the highest for at least 70 years.

Employers NI would seem a possible area to target, although it somewhat contradicts the growth ambitions set out by Labour and could be damaging for business.

Darren Jones, chief secretary to the Treasury, has told the Telegraph that Labour has ‘a promise to the public not to increase employee national insurance’, but would not be drawn on whether the employer component was equally protected.

The Treasury is looking at all tax options before the 30 October Budget and is reviewing the possibility of raising the employer rate of national insurance, from the current 13.8%.

However, this is unlikely to raise substantial revenues even with a 1% increase likely to pull in an extra £1bn in tax a year.

In 2023-24, employers paid £107.9bn in national insurance contributions, up from £103.bn the previous year. This figure was substantially higher than pre-pandemic when the total paid was 35% lower at £79.1bn.

Employers pay Class 1A and 1B national insurance on expenses and benefits at a rate of 13.8%. Class 1A NI also has to be paid on redundancy payments.

The last government under chancellor Jeremy Hunt cut employee NICs by 4% in January and April of this year which cost £20bn, but left the employer rate unchanged.

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