Are you expecting a lower pay rise next year

💡 𝗡𝗲𝘅𝘁 𝘆𝗲𝗮𝗿𝘀 𝗘𝗺𝗽𝗹𝗼𝘆𝗲𝗿𝘀 𝗡𝗜𝗖’𝘀 𝗿𝗶𝘀𝗲 -> Maybe not so smart in the short term?

I wouldn’t normally do a ‘political’ post, but there are big challenges ahead for UK business, and I wanted to give a thought on the Employer NIC’s tax rise next year (2025-26)…

𝗜𝗳 you are normally lucky enough to get an inflationary pay rise next year, 𝙗𝙪𝙩 𝙮𝙤𝙪𝙧 𝙚𝙢𝙥𝙡𝙤𝙮𝙚𝙧 𝙙𝙚𝙘𝙞𝙙𝙚𝙨 𝙩𝙤 𝙩𝙧𝙞𝙢 𝙩𝙝𝙖𝙩 𝙧𝙞𝙨𝙚 by the same %age increase in their NIC’s – both 𝘆𝗼𝘂 *𝙖𝙣𝙙* 𝙩𝙝𝙚 𝘾𝙝𝙖𝙣𝙘𝙚𝙡𝙡𝙤𝙧 𝙖𝙧𝙚 𝙡𝙤𝙨𝙞𝙣𝙜 𝙤𝙪𝙩… Because the Chancellor would have received more tax revenue from your otherwise increased gross pay packet.

I can’t help but thinking that the manifesto promise (!) they made has forced them into doing something that may not be that clever after all….

Appreciate that different base pay and different pay rises have a variable effect here – but the illustration below shows a UK National average wage. The tax position this year (24-25), and two different scenarios for next (25-26).

👉 A 2.5% pay rise, or a 1.3% rise instead.
🔢 Both future illustrations show the lower threshold (£5K) and the new ER NIC’s rate (15%)

If the Chancellor didn’t change anything next year – that 2.5% pay rise would have increased her collection by £374. With the new threshold and rate rise, the same pay rise will give her £1320 more than this year, per national average wage earner. That’s a lot for businesses to swallow….

Happy for my illustration to be challenged / corrected – what are your thoughts…. ?
📉 Are you expecting a lower rise next year?