National Insurance Contributions (Secondary Class 1 Contributions) Bill 2024-25

At the Autumn 2024 Budget, the Chancellor, Rachel Reeves, announced several changes to employer National Insurance contributions which would come into force from April 2025. These changes are set out in the National Insurance Contributions (Secondary Class 1 Contributions) Bill 2024-25.

The bill was introduced on 6 November 2024. The bill, with its explanatory notes, is published on a dedicated webpage on parliament.uk. The page also details the bill’s parliamentary progress.

The bill’s second reading is scheduled for 3 December 2024.

The bill would make changes to National Insurance contributions (NICs) paid by employers. It would not make changes to NICs paid by employees.

Overview of employer National Insurance contributions

Employers pay HM Revenue and Customs (HMRC) secondary Class 1 National Insurance contributions (NICs, known as ‘employer NICs’) on their employees’ earnings. Currently, employer NICs are charged at a rate of 13.8% after an employee’s earnings exceeds the secondary threshold, set at £758 per month. Eligible employers can get a £5,000 discount on their NICs bill. This is known as the employment allowance. This discount is subject to a cap: employers are not eligible for the employment allowance if their employer NICs liability (the amount of employer NICs they pay) exceeds £100,000 a year.

In 2023/24, NICs raised £179 billion, 60.5% of which came from employer NICs.

Money raised from NICs is mostly spent on contributory benefits. The Social Security Administration Act 1992 requires HM Revenue and Customs (HMRC) to transfer a majority of this money to a separate pot of money: the National Insurance Fund (PDF). HMRC transfers a portion of this money (estimated to be £33.5 billion in 2023/24) to the National Health Service (NHS). The NHS allocation is a specified percentage per type of NICs. For example, each year, 1.9% of secondary Class 1 NICs are allocated to the NHS.

NIC rates are set out in the Social Security Contributions and Benefits Act 1992, sections 8(2), 9(2), and 15(3ZA). NIC thresholds are set out in secondary legislation, the Social Security (Contributions) Regulations 2001.

The Library briefing National Insurance contributions: An introduction has more details on the operation of the tax.

What would the bill do?

The bill would implement the following changes to employer NICs from 6 April 2025:

• an increase in the rate of NICs paid by employers on their employees’ earnings, from 13.8% to 15%
• a decrease in the secondary threshold (the threshold after which employers start paying NICs on their employees’ earnings) from £758 a month to £417
• an increase in the employment allowance from £5,000 to £10,500, and a removal of the £100,000 eligibility cap

This means the bill would increase the NICs rate that employers pay on an employee’s earnings. The level at which employers start paying employer NICs would decrease, meaning employers would pay employer NICs on the wages of employees on lower salaries (when they previously did not have to).

Employers would also be able to offset a higher amount of their employer NICs liability due to the increase in the employment allowance. The discount available would increase to £10,500. Any employer (subject to eligibility criteria) would be able to use the allowance, regardless of their NICs liability, due to the removal of the £100,000 cap.

What effects would the bill have?

The direct impact of the measure makes it the biggest tax increase in the Budget: it is estimated measures in the bill would raise £23.8 billion in 2025/26, rising to £25.7 billion in 2029/30 (PDF). The Office for Budget Responsibility (OBR), which has analysed the proposal, forecasts that the actual revenue generated by the measures in the bill would be £16.1 billion in 2029/30 (PDF). This lower estimate is primarily due to expected behavioural responses from businesses and a reduction in wage growth resulting from the increase in employer NICs.

Announcing the government’s proposals to increase employer NICs at the 2024 Autumn Budget, the Chancellor, Rachel Reeves, said that the proposals would mean “working people will not see higher taxes in their payslips as a result […]”.

The potential effects of the bill  were also analysed by the Treasury Select Committee in its oral evidence sessions following the Budget.

What are the reactions to the bill?

The announcement that employer NICs would be increased was received negatively by opposition MPs, who voiced their concerns in their response to the Budget. Media outlets reported that the measure could have a detrimental effect on some sectors (such as hospitality and social care). Think tanks, such as the Institute for Fiscal Studies (IFS), pointed out that the proposals would have a direct effect on working people, noting the OBR projection that a majority of the cost would be passed from businesses to their employees through lower wages.

The Chancellor did not dispute the OBR’s forecast, but said that wages and household disposable income would be higher by the end of the forecast period as a result of the measures presented in the Budget.