During her first Budget speech, Labour Chancellor Rachel Reeves admitted she was making a “difficult choice” to increase employer’s national insurance contributions they are charged on employees salaries by 1.2%. This will be implemented for the 2025/2026 tax year and is expected to raise £25billion.

The Chancellor shared: “I do not take this decision lightly. A strong economy depends on strong public finances. If the party opposite chooses to oppose they are choosing more austerity, more chaos, more instability.”

While this change likely won’t have a direct effect on workers and their paycheques, it will cause businesses to potentially completely rewrite their financial plans for the next tax year. However, this doesn’t extend to all businesses.

Reeves also highlighted some added protections for small businesses as the allowance they have to pay employees before being charged this national insurance rate will more than double from £5,000 to £10,500. Reeves noted this will see 865,000 employers not paying national insurance next year while a million will pay roughly the same or less than they did previously.

This move should allow small businesses to employ 4 full-time workers on the new national minimum wage the Chancellor also confirmed today. Currently, employers pay Class 1A and 1B National Insurance rates on expenses, lump sums and benefits they provide their employees with.

The rate between April 2024 and April 5, 2025 was set at 13.8% but will now be shifting to 15% next April. According to the BBC the increased revenue from this has been specifically earmarked to go directly to NHS funding.

Experts predicted Reeves would lower the threshold and increase the rate by 2% to raise £20billion as part of the single largest revenue raiser initiative from the Budget. Despite early speculation, Reeves has not introduced a levy on pension contributions for employers.

However, the changes announced are still set to hit the pockets of businesses across the country. Prime Minister Sir Keir Starmer had warned of these “tough decisions” but assured only necessary “painful” steps had been taken in order for the Labour government to ensure it can get the NHS back on its feet.

National Insurance is the second-largest income stream for the government, falling just behind income tax. It’s paid by employees, self-employed people and employers. Part of Labour’s manifesto promised that it would not raise taxes for working individuals, leading many to speculate about the taxes for businesses over recent weeks.