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The budget will increase taxes by £40bn, with the lion’s share coming from a £25bn rise in employers’ national insurance contributions, the chancellor announced at the budget.
Rachel Reeves said the amount businesses will pay on their employees’ national insurance contributions will increase from 13.8% to 15% from April 2025, with the current £9,100 annual threshold lowered to £5,000, in what she called a “difficult choice” to make.
The Office for Budget Responsibility (OBR), which monitors the government’s spending plans and performance, said most of the burden from the increase will be passed on to workers through lower wages, and consumers through higher prices.
It estimated the national insurance hike would reduce the average hours worked by the equivalent of 50,000 hours.
Follow live: All the latest on budget day
Ms Reeves, who said she was “deeply proud” to be the country’s first female chancellor, insisted the Labour government would “invest, invest, invest” and put “more pounds in people’s pockets”.
The £40bn rise in taxes is thought to be the largest increase at a budget since 1993 and John Major’s government and is set to more than fill the £22bn “black hole” Labour said the Conservative government left them with.
Ms Reeves also announced the current freeze on income tax thresholds will end in 2028/29 and will be uprated in line with inflation after that.
The previous Conservative government froze the thresholds which meant more people paying higher rates of tax as their salary increases and they move into higher tax bands.
The OBR said the tax burden will reach “a historic high of 38% of GDP by 2029/30”.
The chancellor said a “line-by-line breakdown” of the black hole will be published, which she said shows there were “hundreds of unfunded pressures on the public finances” under the Conservatives.
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