Chancellor Reeves’ New Budget May Hinder Wage Growth, But Low-Income Workers Set for Boost
Chancellor Rachel Reeves admitted that the Autumn Budget, announced on October 30, may impact wage growth. The £40 billion budget includes adjustments to employer national insurance contributions (NICs) which, combined with other measures, could curb overall wage growth. However, low-income workers are set for a pay raise, as the National Living Wage will increase by 6.7%, rising from £11.44 to £12.21 per hour starting in April 2025. Reeves emphasized that despite wage growth pressures, household incomes should see an uptick during this Parliament, according to the Office of Budget Responsibility.
Business Leaders Raise Concerns Over Rising Costs
NIC Hike and Wage Requirements Could Impact Small Businesses and Jobs
The Chartered Institute of Payroll Professionals (CIPP) and other business organizations have expressed concerns that the combined rise in the National Living Wage and NIC rate could strain employers, especially small businesses in retail, hospitality, and childcare sectors. The budget increases employer NIC rates from 13.8% to 15%, which RSM UK’s Andrew Timpson calculates could add around £940 per year per employee, based on the average UK salary of £36,000. Timpson warned this could pressure companies’ pay structures and potentially lead to job cuts as businesses attempt to manage higher expenses.
However, employers may still benefit from NIC savings through pension salary sacrifice arrangements, as the budget did not introduce the anticipated NIC charge on pension contributions.
New Budget Offers Some Relief to Small Businesses
Employment Allowance and Business Rates Freeze Aim to Ease Cost Burden
In an effort to offset the NIC hike, smaller businesses will see their Employment Allowance doubled from £5,000 to £10,500, allowing eligible employers to hire up to four full-time workers on the National Living Wage without incurring NIC charges. The Federation of Small Businesses (FSB) called this increase a "pro-jobs prioritisation," and FSB Policy Chair Tina McKenzie commended the move.
Additionally, the budget introduced a freeze on the small business multiplier in business rates, aimed at easing the burden for small businesses across sectors facing increased tax pressures. Extended business rates relief for retail, hospitality, and leisure sectors offers further support, though concerns remain about SMEs facing rising NIC and employment-related costs.
Future of Small Business in Focus with New Strategy Paper
SMEs Await Government’s Strategic Plans Amid Cost Concerns
The budget announced a forthcoming small business strategy command paper, signaling increased government support for small businesses. While acknowledging the positive steps in the budget, McKenzie urged the government to consider the cumulative impact of rising NIC rates and employment law reforms on small to medium-sized enterprises, warning that these changes could impact job security, wages, and business prices
The FSB has committed to collaborating with the government to ensure the continued growth and resilience of small businesses amidst evolving economic conditions.
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