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Employers to bear the brunt – 2024 Autumn Budget

4 November 2024

In this article we visit the employment changes that have been made because of last week’s Autumn budget, delivered by Chancellor of the Exchequer, Rachel Reeves.

The main changes are:

1. Increases to the National Living Wage; and
2. Increases to employer National Insurance contributions.

The National Living Wage will increase from £11.44 to £12.21 an hour for workers aged over 21, from April 2025, to create a “genuine living wage” according to Reeves. This is a change that will affect over 3 million workers, who will benefit from an increase amounting to £1,400 a year for those who work full-time hours. Employees aged 18 to 20 and apprentices will similarly experience an increase in their minimum hourly pay, which will increase from £8.60 to £10 as part of the Government’s plan to move towards a ‘single adult rate’ over time.

Some commentators have argued that the 6.7% increase will have an adverse impact on job creation and retention rates, for small businesses in particular. Employing staff will come at a higher cost, especially for SMEs but also for larger businesses seeking candidates to fill lower-skilled jobs (who tend to be younger in age).

Overall, though, workers and job applicants will welcome the increase, which follows a recommendation by the Low Pay Commission and is accompanied by a freeze on tax thresholds until 2028.

Described as a “difficult decision” by the Government, from April 2025, there will be an increase in the rate of employer National Insurance Contributions by 1.2 percentage points to 15%. The per-employee threshold whereby employers start to pay National Insurance will be reduced from £9,100 per year to £5,000 per year.

The Government has put in place support for small businesses because of these changes, increasing employment allowance from £5,000 to £10,500 and removing the £100,000 threshold which the Government has said will result in 865,000 employers not having to pay any National Insurance.

This will be seen as a positive result for smaller businesses who will not need to pay, though some commentators have acknowledged the potential loss in profits from possible reduction in business investments and some further speculate that in the long term businesses may have to cut costs in alternative ways.

Following the budget, then-leader of the opposition Rishi Sunak has remarked that the Government has raised tax to record levels, having “broken their promises”, and that it is the working people who are going to “pay the price”. Sunak has said that the Budget “raises tax on working people by increasing National Insurance”. Conversely the Government has been quick to point out that employees will not pay more directly, and that the money will be spent improving public services.

The Budget follows the Government’s unveiling of the Employment Rights Bill on 10 October 2024. This is legislation that the Government claims will “Make Work Pay” by (among other things) banning exploitative zero-hours contracts, putting an end to unfair ‘fire and rehire’ practices, making flexible working the default where practical, and introducing basic day one rights – including the ‘day one’ right to claim unfair dismissal.

As outlined above, big changes will soon be coming which will affect both employers and employees. If you have any queries regarding what this may mean for your business or as an employee, our employment law and HR specialists are here to help.

To arrange an appointment:

• Call our Enquiries Team on 03330 144455
• Email enquiries@redkitelaw.co.uk

This article was written by Redkite Solicitors,  James Watkins and Maeve McGovern. To find out more about James Watkins and the support that she can provide to you, visit her website profile here: https://www.redkitesolicitors.co.uk/team/james-watkins/