Wages warning issued to workers as firms set to face higher tax costs

An increase to employer national insurance is 'highly likely' to hit jobs and wages, according to the Government's official forecaster. Chancellor Rachel Reeves announced her first Budget earlier on Wednesday (October 30).

She reiterated Labour's promise not to increase income tax, VAT or national insurance of workers. But the Chancellor confirmed plans to increase employer national insurance contributions from next April.

Analysis from the Office for Budget Responsibility (OBR) suggested that the move is expected to have an indirect impact on jobs and wages. The OBR assumes firms will 'pass on most but not all of their higher tax costs to employees'.

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David Miles, a member of the OBR, said it expects the tax hike to 'have an impact on the level of wages that firms who are facing higher taxes on employing people will pay'. “It seems highly likely that most of it will feed through in real wages,” he said.

Ms Reeves insisted that working people would 'not see higher taxes in their payslips' following today's Budget. But the OBR estimates businesses will pass on 60 per cent of the higher costs they face to workers and consumers, via lower wages and higher prices, in 2025-26.

The remaining 40 per cent will be absorbed by the employer in lower pre-tax profits, according to its analysis. By the following year, it expects 76 per cent of the total cost to be passed on through lower real wages.

Ms Reeves said the rate of employers’ NI will rise by 1.2 percentage points, from 13.8 per cent to 15 per cent from April next year. The secondary threshold - meaning the level at which employers start paying the tax on each