Autumn 2024 Budget: Key employer takeaways on the black hole, national insurance and wages

Following Labour’s first budget in 14 years, employers have tough decisions to make.

After months of election promises of fully costed manifesto pledges and staunch assurances that taxes wouldn’t be raised, the business world may feel as if the rug has been pulled from beneath its feet following the Chancellor’s recent speech.

The changes to what had been perceived by many as a concrete plan occurred after the discovery of a £22 billion “black hole” in the public finances following Labour’s ascension to office.

However, even after weeks of speculation in the run up to the Budget, no one could have predicted that the Chancellor would seek to raise £40 billion through taxes alone, and it would be up to businesses to foot over half of the bill.

National insurance contributions

Days before the Chancellor set out her plans, it was leaked that increases to employer national insurance contributions (NIC) would play a vital role in filling the black hole. With the reforms due to take effect in early 2025, businesses may feel unprepared to face such a monumental change to the way they operate.

The changes to employer NIC are significant. The percentage employers are expected to pay on worker earnings has risen from 13.8% from a base salary of £9,100 to 15% from a base salary of £5,000. This means that not only has the required percentage gone up, but the base salary has simultaneously been lowered, with the aim of raising an additional £25 billion per year.

Exemptions to employer NIC

The Chancellor announced that the employment allowance for small businesses would increase from £5,000 to £10,500, but with such a large sum of money to raise, further exemptions are unlikely. It appears as if this will be a blanket rise, regardless of sector or specialism, putting future plans for employers on hold as they face the impact of these increases.

Impact on employers

With an estimated £615 to find per employee, businesses will need to make hard decisions as to whether this cost can be absorbed or passed on.

Should a business seek to absorb these costs, it could soon find that margins are eroded, and growth plans halted. Should the costs be passed onto the employee, employers could quickly see a negative impact on hiring, retention and internal processes such as salary reviews, leading to slower wage growth and dissatisfied staff.

Increased minimum wage and day one rights

While increased employer NIC will undoubtedly form one of the most major recent challenges experienced by businesses, it is not the only one.

Organisations also need to prepare for the increased minimum wage and incoming changes to workers’ day-one rights in the soon-to-be-implemented Employment Rights Bill. As a result, some businesses may feel they are facing battles on multiple fronts, with a loss of flexibility and increased liability at every turn.

Restructures, redundancies and risk aversion

Many business leaders will likely be forced to make difficult choices following this budget. For example, reorganising the workforce, closely examining how certain functions are carried out, potentially leading to redundancies.

It will also affect hiring practices. With day-one rights to unfair dismissal and an increased financial burden per employee, employers may become more risk averse. This new caution will inevitably flow into growth plans too, as businesses seek to balance the increased legal and financial risks that come with a larger workforce and expanded operations.

How will organisations take action?

With so much change to adapt to in such a short time frame, many businesses could feel as if they have been unfairly kept in the dark. The government’s insistence that the plan has only changed due to the discovery of the financial black hole may not hold water with many of the leaders who have been effectively blindsided by such a significant tax increase. However, businesses must adapt to these changes urgently, to be in the best possible position when they come into effect in 2025.

This may involve:

•  Urgent review of the business’ strategy to bring it in line with the incoming legislation and increased financial burden.
• Temporary halt to expansion plans as businesses seek to absorb or pass on the additional costs.
• In-depth review of working practices to make efficiencies that will help with the increased costs.

It may also mean that businesses enter an era of caution until the regulatory landscape settles again, leading to less spending, fewer new hires and reduced plans for growth.

Summary

As the dust settles from the Budget, a different, more difficult business landscape has emerged. However, by revisiting strategies now and seeking independent advice where appropriate, there is still time to get ahead of these changes for 2025.