Chancellor Rachel Reeves promised a budget where “working people will not see higher taxes in their payslips”, yet the hit on businesses will have a detrimental knock-on effect on employees.
On the surface, it may seem like she left alone the ‘working people’ from tax hikes, yet the budget will indirectly affect millions of hardworking individuals, according to the Office for Budget Responsibility.
Employers National Insurance (NI) has been increased by 1.2 percantage points to 15%, up from 13.8%.
The Treasury has also announced a reduction in the secondary threshold, the level at which employers start paying NI, from £9,100 per year to £5,000 – a whopping 45% decrease.
Both of these will greatly impact businesses, particularly small companies, and could leave both bosses and their employees worse off.
Forecasts released by The Office for Budget Responsibility (OBR) assume “around 60%” of the increase in costs will be passed on to employees in the short term, with things taking a dire turn in 2026/2027 where 76% of workers could face lower real wages as a result.
In the UK, there are 1.4 million registered private sector businesses with employees on payroll, according to the government – this totals 22.9 million employees, 70% of the British workforce.
HMRC has now predicted that 940,000 companies will see their tax dues hiked by £26,000 due to the increase in NI measures.
Sir Keir Starmer’s definition of a working person is someone who “goes out and earns their living, usually paid in a sort of monthly cheque” and who can’t “write a cheque to get out of difficulties”.
However, many small businesses affected are working proprietors, where the owners are involved in the day-to-day operations, totalling 428,000 companies.
These entrepreneurs are not the industry professionals who are likely to be able to “write a cheque to get out of difficulties”, as nearly eight out of ten of these have fewer than ten employees.
The budget will now see an employee on a median wage cost their employer an additional £965 a year, new Telegraph analysis has revealed.
With 22% of small firms not able to turn over a profit in the past year, according to research from the BVA BDRC, it will makes life a lot tougher for both businesses trying to stay afloat, and those employed by them.
The OBR has also predicted that the budget will overall lower the employment rate by 0.1% in the long run due to an expected reduction in labour supply and demand by about 50,000 average hours.
By 2030, real household disposable income is now set to be £300 lower following the budget, leaving the ‘working people’ poorer.
