Rachel Reeves is said to be considering a hike to employer National Insurance contributions as part of her Autumn Budget.
Under current rules, employers pay National Insurance at a rate of 13.8% on all earnings above £175 per week, or £9,100 per year – but reports suggest the Chancellor could be set to increase this rate. The Institute for Fiscal Studies (IFS) think tank told the BBC that HMRC has estimated that increasing the rate of National Insurance to 14.8% could raise as much £8.5billion per year for the Treasury.
Pension contributions made by employers are currently exempt from National Insurance. There are reports that suggest this could also change. The Treasury does not comment on Budget speculation, with Rachel Reeves set to make her fiscal statement on October 30. Changes to employer National Insurance contributions could be tempting for Labour as it would not directly impact people’s payslips – but experts suggest firms may look to mitigate these costs with smaller wage rises or hiring freezes.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “In the Labour party manifesto, it stated it would not raise national insurance for working people. Looking to hike them for employers rather than employees may look like it’s hitting this brief, but it’s a move that will impact businesses and their workers alike and bring future challenges should Government want to boost auto-enrolment minimums in the future.”
Ms Morrissey also said there’s the potential that employers will be put off from boosting pension contributions beyond auto-enrolment minimums. This would mean people have less money in their pension pot when they come to retire. The minimum auto enrolment contribution to an employee’s pension savings is 8% of qualifying earnings. Employers must pay at least 3% and the employee the remaining 5%.
According to a survey for the Association of British Insurers, almost half of employers that pay more than the minimum into their workers’ pensions will consider reducing their contributions if they have to pay National Insurance contributions on them. Meanwhile, the CBI told the BBC companies have paused taking on new workers and investing until they know exactly how the Budget will affect them.
Ms Morrissey said: “Even if the government didn’t opt to impose the whole 13.8% on contributions it would still hurt. If, for example, it added employer NICs of 2% on contributions, it would add £17.25 per year to the cost of paying into the pension of someone earning £35,000 per year and receiving the auto-enrolment minimum of 3% from their employer. Spread that across a couple of hundred employees then the figures get big fast.”
