What planned changes are to be made to employer National Insurance contributions (NICs)?

The government announced three changes to employer NICs in the 2024 Autumn Budget to take effect from 6 April 2025:

  • An increase in the rate of employer NICs – ‘secondary Class 1 NICs’ – from 13.8% to 15%.
  • A cut in the secondary threshold – which is the point at which employers become liable to pay NICs on employees’ earnings – from £9,100 a year to £5,000 a year.
  • An increase in the Employment Allowance. This currently allows businesses with employer NICs bills of £100,000 or less in the previous tax year to deduct £5,000 from their employer NICs bill. The Allowance will be increased from £5,000 to £10,500, and the £100,000 threshold for eligibility will be removed, to expand it to all eligible employers with employer NICs bills.

The government has introduced the National Insurance Contributions (Secondary Class 1 Contributions) Bill 2024-25 to provide for the rise in the NI rate and cut in the NI threshold, as well as the increase in the Employment Allowance. Further details are provided in the Library briefing on the bill. 

What impact are these changes forecast to have on employers?

HM Revenue & Customs (HMRC)’s impact assessment states these changes will impact around 1.2 million employers. Around 250,000 employers will see their secondary Class 1 NICs liability decrease and around 940,000 will see it increase. Around 820,000 employers will see no change. Overall, more than half of businesses with NICs liabilities next year will either gain or will see no change in their secondary Class 1 NICs liabilities.

The Office for Budget Responsibility (OBR) discuss the impact of these reforms in their Economic and Fiscal Outlook published alongside the 2024 Autumn Budget report. The OBR note that the impact for any individual employer will depend on the size of their workforce, and the degree to which any rise in NICs liability from the higher employer rate and lower employer threshold is mitigated by the rise in the employment allowance (para 3.8-3.12).

In this context it is important to note that employers cannot make a claim for the Employment Allowance if they are a public body or business doing more than half their work in the public sector (such as local councils and NHS services), unless they are a charity.

What will be the impact on public sector organisations?

The changes to employer NICs announced in the Budget are forecast to raise between £23.8 billion and £25.7 billion a year, for the five years 2025/26 to 2029/30. However, the government plans to provide compensation for public sector employers over the five-year period, worth between £4.7 billion and £5.1 billion a year (2024 Autumn Budget, HC 295 (PDF), October 2024 – Table 5.1: item 26).

As the OBR note, this compensation costs around one fifth of the ‘static yield’ from the NICs changes by the end of the forecast period. The ‘static yield’ is the amount that is forecast to be raised before accounting for any behavioural effects. The OBR estimate that once taking these effects into account, the rise in employer NICs will raise between £14.6 billion and £18.3 billion a year, for the five-year forecast period (Economic and Fiscal Outlook, CP1169, October 2024 – Table 3.2).

On 10 January the Chief Secretary to the Treasury, Darren Jones, confirmed that the government planned “to update Parliament on the allocations of support by department in due course” (PQ 20950, 10 January 2025; see also, PQ 26051, 31 January 2025). On 3 February the Deputy Prime Minister and Secretary of State for Housing, Communities and Local Government, Angela Rayner, announced the Local Government Finance Settlement for 2025/26. This included figures for the amount of support to be provided councils in England as well as Mayoral Combined Authorities.

Is there precedent for this form of compensation for public sector employers?

Yes. The Chief Secretary to the Treasury, Darren Jones, has noted that the government’s decision to provide support for departments and other public sector employers is in line with the approach taken under the previous government’s Health and Social Care Levy (PQ 16601, 5 December 2024).

In September 2021 the Conservative government announced a new Health and Social Care Levy, based on NICs. It was proposed that the Levy would be introduced in two phases, initially through a 1.25 percentage point increase in the rates of NICs from 6 April 2022. It introduced legislation at this time to bring in the Levy. This first stage took effect, but in September that year the government decided to rescind the Levy completely, with effect from 6 November 2022 – introducing legislation to that effect. When the Levy was first announced, the government stated that it would provide compensation for the additional cost to public sector employers.

What provision has the government made to compensate police forces?

In England and Wales, the main source of income for the 43 geographic police forces is central government grant funding made available through the annual Home Office Police Grant Report.

On 17 December 2024 the Minister of State for Policing, Fire and Crime Prevention, Dame Diana Johnson, announced the provisional Police Grant Report for the next financial year, 2025/26. The government proposed that total funding would be up to £17.4 billion, an increase of up to £986.9 million compared to the previous year’s funding settlement. One part of this additional funding – £230.3 million – is to compensate territorial forces for the costs of the change to the employer National Insurance Contributions from 2025/26. The minister announced the final Police Grant Report 2025/26 on 30 January 2025.

Following the announcement of the provisional Policy Grant Report, the minister has confirmed this additional funding to cover the costs to the police for additional employer’s NICs in answer to a PQ from Esther McVey (Conservative) (PQ 19676, 27 December 2024; see also, PQ 22762 , 13 January 2025; PQ 26010, 31 January 2025).

On 5 February 2025 the House of Commons approved the Police Grant Report (England and Wales) 2025/26. During the debate the Minister of State for Policing, Fire and Crime Prevention, Dame Diana Johnson, reiterated that funding for 2025/26 included £230 million to fully cover the rise in employer NICs.

Further reading

Commons Library research briefing CBP10149 National Insurance Contributions (Secondary Class 1 Contributions) Bill 2024-25: Progress of the Bill, 11 December 2024

Commons Library debate pack, Motion to approve the Police Grant Report (England and Wales) 2025/26, 4 February 2025

Commons Library research briefing CBP7279, Police funding, 26 February 2016

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