Would an increase in national insurance for your employer cost you money?

Keir Starmer has twice refused to rule out an increase in employers’ national insurance contributions in the budget, saying he pledged not to increase taxes on working people.

However, experts have warned that an increase in employer contributions in the autumn budget or the imposition of NI on pension contributions could have a knock-on effect on workers.

It wouldn’t be a direct tax increase on working people, fulfilling Labor’s election promise, but it could cut hiring, wages and pension contributions.

We look at employee and employer national insurance contributions and why the government is considering increasing or adding NI on the latter to pensions, and what this could mean for you.

Why increase employer premiums?

There is speculation as to whether the government will increase employers’ national insurance contributions or add them to employers’ pension contributions.

There are two national insurance rates: one paid by employees based on their income, and one paid by employers on the wages they pay.

Staff pay was cut twice by former Chancellor Jeremy Hunt and the standard rate is currently 8 percent. The rate drops to 2 per cent on annual income above £50,284 – largely in line with the income tax threshold of 40p.

Employers also pay National Insurance based on an employee’s wages and the rate for this is currently 13.8 percent.

Labor pledged not to increase taxes on working people ahead of the election and its manifesto ruled out increases in income tax, national insurance, VAT and corporation tax rates.

But there are rumors that Labor believes it has some leeway on that pledge and thinks it could argue it will still stick to it, while increasing national insurance contributions for employers and possibly levying them on employer pension contributions.

Last weekend, business secretary Jonathan Reynolds suggested the Chancellor could increase the levy on employers, which could raise as much as £17 billion a year.

This could go some way to helping Chancellor Rahcel Reeves plug the so-called £22 billion ‘black hole’ in the country’s finances.

However, an increase in income for employers is also called an ’employment tax’ and could have a damaging effect on business confidence. At the same time, the government is trying to make Britain an attractive place to invest.

It would further increase labor costs for companies already struggling with a looming increase in the national living wage and other cost constraints.

The ability to increase NI contributions has also come under fire from businesses and economists for breaking a promise in the manifesto.

Paul Johnson, the director of the Institute for Fiscal Studies, said: ‘I went back and read the manifesto and it says very clearly: we will not increase National Insurance rates.’

What would an increase in employer contributions mean for employees?

Any changes in employer contributions will almost certainly trickle down to employees.

A survey by the Association of British Insurers and the Reward and Employee Benefits Association found that 42 percent of companies currently paying pension contributions above the auto-enrolment minimum would reduce them if an NI levy were introduced.

Robert Salter, tax partner at Blick Rothenberg, told This Is Money: ‘A core tenet of labor economics is that it is in fact employees who actually cover the cost of employers’ NICs, as future pay rises and bonuses will be reduced to cover the additional recognize costs. costs that the employer now has to bear.’

Employers could also look for alternatives to reduce costs, by investing in technology to reduce labor, or by moving some work to other countries.

“Both developments could easily reduce the need for labor in Britain and the wages people can expect,” Salter said.

Phil Harwood, director of pensions advice at Evelyn Partners, told This Is Money that there is ‘general pessimism about pension provision’ among businesses.

‘The effects can initially be quite subtle and difficult to detect. Some of our client companies recently increased their employer contribution rate and/or improved the definition of pensionable earnings.

‘But they are now waiting to make these decisions until the Budget, and if employers’ NI were to be applied to pensions, many of these companies will reconsider these intentions. And companies could offer new employees less generous conditions.”

Can other employment benefits be cut?

Changes in employers’ pension contributions may also affect how non-pension benefits, such as healthcare, can be treated.

Harwood warns that the additional costs of pensions for companies could hinder the trend towards offering generous benefits.

What about salary sacrifices?

There has also been speculation that employer NI could be applied to salary sacrifice, which is often used by employees looking to increase their pension contributions.

“This is used by around half of the businesses we advise to pay all or part of the employer’s NI savings to staff as an additional employer pension contribution,” says Harwood.

“Many employees could miss out on the 13.8 percent increase they currently receive on their personal contributions.”

Jon Greer, head of pensions policy at Quilter, said any changes could make the schemes much less attractive to employees, ‘potentially leading to a reduction in their take-up’.

‘However, they would still have value if the employee’s NI savings were added to their pension, and would be even more valuable if they sacrificed income below the £50,270 cap.

‘If an employer currently shares all its NI savings with the employee through higher contributions, the impact on the employer is neutral; instead of the NI savings going into the employee’s pension, it would be paid into the Treasury.

‘The employee would still benefit from not paying national insurance, but he would miss out on the NI savings that the employer had previously made into his pension pot.’

How will walking employer NICs affect the economy?

Rachel Reeves is faced with a conundrum as she tries to balance the books and stimulate the economy, which means she faces some tough decisions.

Earlier this week the government hosted an international investment summit in a bid to secure foreign funding, but could potential changes to employer NICs thwart these plans?

Salter warns that rising costs for employers could potentially drive up inflation, which many people see as an indirect tax on everyone as their money buys less and less.

There is also a risk that raising taxes on companies could only deter international companies from investing in Britain.

‘Given that the Labor government is – at least officially – focused on growing the UK economy, I don’t see how it could validly grow employer networks and pretend that this is still their real goal .’

At a national level, this could provide a further disincentive for employers to recruit new workers, particularly younger workers, where companies ‘typically already have significant training costs’.

That said, walking NICs “could act as a way to increase economic productivity… by reducing the number of low-cost workers and replacing them with technology,” says Salter.

While productivity per capita could improve, this will be of little value to workers who will have to leave their jobs and likely look for work elsewhere, or turn to benefits.