Increases in NMW and National Insurance: good for workers?

Two announcements have been made this week, which will have an impact on employers. We consider the impact of those changes and the potential wider ramifications.

National Minimum Wage

This week, it was announced that the Government accepted the Low Pay Commission’s recommendations on the rates of the National Minimum Wage, which will apply from 1 April 2025.

The new rates will be:

	Current NMW rate	NMW rate from 1 April 2025	Percentage increase
National Living Wage (21 and over)	£11.44	£12.21	6.7%
18-20 year-old rate	£8.60	£10.00	16.3%
16–17 year-old rate	£6.40	£7.55	18.0%
Apprentice rate	£6.40	£7.55	18.0%

According to the Government, the recommended National Living Wage rate is expected to equal two-thirds of median earnings. It will have the highest real value in the history of the UK’s minimum wage.

Employer’s National Insurance Contributions

During the Autumn Budget this week, Rachel Reeves, Chancellor of Exchequer, announced that the threshold at which employers start paying National Insurance will be lowered from £9,100 to £5,000 per year. Employers’ National Insurance Contributions rate will be increased from 13.8% to 15%.

The Chancellor also announced that the employment allowance (the amount employers can claim back from their National Insurance bill) will increase from £5,000 to £10,500, which the Chancellor says will mean 865,000 employers won’t pay any National Insurance next year. The intention behind this is to make it easier for small businesses.

Despite forecasts, the Chancellor did not extend the current freeze on personal tax thresholds, which are already set to remain in place until 2028.

Potential impact

Whilst the Government has had to make some difficult decisions, and Treasury data indicates that the increase in the National Insurance threshold will boost funding significantly, concerns have been raised regarding the impact that this, in addition to next year’s National Minimum Wage increases, could have on employers and workers.

The Government has confirmed that more than three million workers will benefit from the increase in the national minimum wage, but could higher costs for employers be indirectly detrimental to some?

With an increased wage bill, some employers, notably smaller retail, hospitality, and care businesses, could be left with some tough decisions to make. Could this threaten business viability, leading to job losses, reduced investment, and a reduction in new vacancies? Will there be an impact on workers through restrictions on pay rises?

Time will tell whether these changes play a successful part in the Government’s intended aim of establishing economic stability and ‘making work pay’ or whether the indirect consequences will have a negative impact on both employers and working people.

For more information about this article or any other aspect of people solutions reimagined, download our App for Apple or Android, and contact your integrated HR, employment law and health & safety team at AfterAthena today.