The national insurance contributions (NICs) measures in the October 2024 budget have been scored as one of the largest changes to a single tax for many decades. However, indirect effects mean the overall effect on the exchequer will be significantly lower than the headline figure suggests, as a higher tax burden which could otherwise be shared between employer and employees leads to lower employment, lower wage growth, lower profit and lower output.
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Key findings
- Changes to the employer NICs are forecast to raise £23.8 billion in 2025-26, larger than other historic tax rises like the increase in corporation tax in 2023 and the increase in VAT in 1979.
- This does not consider indirect effects like lower employment, wages, profits and output which will reduce the tax take to £18.3 billion.
- The increased cost of public sector employees will require a further £4.7 billion, reducing the net gain of the exchequer to £13.6 billion.
- For an employee on the median wage, changes to employer NICs will result in the cost of employing them rising by £976 or 2.3 per cent.
- For a part-time employee on the minimum wage, changes to employer NICs will result in the cost of employing them rising by £649 or 5.3 per cent.
- Payslips reflecting the full amount an employer sets aside to cover the cost of an employee would more accurately reflect the cost of taxes which could otherwise be shared between employer and employees.