2024 Autumn Budget predictions

Chancellor Rachel Reeves’s first Budget brings potentially significant shifts that will reshape employer costs, employee benefits, and payroll operations.

The most significant changes centre on National Insurance Contributions (NICs), with the government considering substantial adjustments to employer obligations. While employee NIC rates remain stable in line with manifesto commitments, employers face potential increases from the current 13.8% rate. More notably, there are proposals to apply NICs to employer pension contributions at the same rate, a change that could generate £17 billion for the Treasury but significantly impact total reward costs. 

These NIC changes arrive alongside an extended freeze on income tax thresholds (which is unlikely to be ‘un-freezed’ in this budget) creating a complex landscape for payroll teams. The personal allowance remains at £12,570, with the basic rate band spanning from £12,571 to £50,270, higher rate band from £50,271 to £125,140, and additional rate applying above £125,140. This ongoing freeze means more employees will inevitably drift into higher tax brackets through fiscal drag, increasing both their tax burden and the administrative complexity for payroll departments.

The pension implications of the Budget extend beyond the potential new NIC liability. Many employers would need to fundamentally review their pension arrangements and total reward packages. The prospect of an additional cost on pension contributions may lead some organisations to reconsider their contribution levels or explore alternative benefit structures. This creates a delicate balance between managing costs and maintaining competitive employee packages that support recruitment and retention.

The minimum wage has also been predicted to rise above-inflation increase exceeding six percent. This will push the National Living Wage (NLW) above £12.12 per hour, from £11.44 per hour, affecting more than one million workers currently on low incomes. It will particularly impact younger workers aged 18-20, who are set for an even steeper increase as part of the government’s strategy to eventually align their pay with workers aged over 21.

For employers, this minimum wage increase would create a double challenge when combined with the potential rise in employer National Insurance contributions. The Federation of Small Businesses has emphasised the need to consider these cumulative effects on businesses, particularly small enterprises that may struggle with the combined impact of higher wage bills and increased NICs.

Any impact on take-home pay and total reward packages would make effective communication vital, with clear, comprehensive messaging that explains how the adjustments affect individual employees.