During the Autumn Budget, Chancellor Rachel Reeves attempted to delicately tip-toe around the government’s manifesto pledges not to increase taxes on “working people” with the much-expected rise in employer’s national insurance contributions, taking the employer rate to 15%.
The increase was combined with a lowering of the threshold for employer’s national insurance from £9,100 to £5,000, but to soften the blow, the employment allowance was increased from £5000 to £10,500. This tax increase is expected to raise £20bn, the largest amount of any of the changes announced.
Further investment in HMRC
Elsewhere, the Chancellor continued to build on the government’s pledge to close the tax gap. With exchequer secretary to the treasury James Murray at the helm as chair of HMRC, Reeves announced further investment in HMRC services. This builds on the already announced funding for 5,000 additional compliance officers at HMRC.
Introducing further HMRC modernisation, Reeves said: “Before a government could consider any change to a tax rate or threshold, it must ensure that people pay what they already own.”
The Chancellor then went on to announce that the government will invest to “modernise HMRC systems using the very best technology, and recruit additional HMRC compliance and debts”.
She also highlighted a clamp down on umbrella companies and increase interest rates on unpaid tax debts “to ensure that people pay on time and go after the promoters of tax avoidance schemes”. She said these measures will reduce the tax gap and raise £6.5bn by the end of the forecast.
Increase to employer’s national Insurance
The increase to employer’s national insurance was expected after weeks of speculation. The rise has already ruffled feathers before the Budget, with opposition parties arguing that the increase goes against the spirit of Labour’s manifesto pledge not to increase national insurance.
Reeves committed to the manifesto promise not to increase income tax, national insurance and VAT on ‘working people’. Although she pinned the blame on needing to increase employer’s national insurance on the previous government:
“The last government paid cuts of 20 billion pounds to employees and self-employed National insurance in their final two budgets, these tax cuts were not honest, because we now know that they were based on a forecast, which the OBR say, would have been materially different.”
What’s here for businesses?
The government spent a huge amount of time before the Budget talking about working people. This ended up tying the government in knots over what taxes it could actually raise without breaking a manifesto pledge but also revealed ahead of time that the burden was likely to fall on businesses.
The much-expected increase to employer’s national insurance will spell bad news for SMEs and self-employed businesses, who also heard in the Budget that the national living wage will increase from next year by 6%.
There was little in terms of new announcements or incentives for businesses, aside from a previous commitment from the Chancellor to maintain full expensing and the £1m annual investment allowance.
There was a little more for high street businesses. With business rates from 2026-27 being a major source of concern, Reeves said the government was introducing two permanently lower tax rates for retail, hospitality and leisure properties.
“I will today provide 40% relief on business rates for the retail, hospitality and leisure industry in 2025 26 up to a cap of £110,000 per business. Alongside this, the small business tax multiplier will be frozen next year,” she said.