Box B: The Effects of the Rise in NICs

In the October 2024 Budget, the Chancellor announced changes to employer's National Insurance Contributions (NICs). These changes included raising the rate by 1.2 percentage points from 13.8 per cent to 15 per cent, decreasing the tax-free threshold from £9,100 to £5,000, increasing the employment allowance from £5,000 to £10,500, and scrapping the £100,000 threshold at which it is paid. These changes will benefit some businesses while disadvantaging others; due to the threshold changes the impact will depend entirely on the hiring practices of the business. One way of thinking about it is to say that a business that employs fewer than 14 people at £30,000 each will be better off, whereas a business that employs more than 15 people will be worse off. From an economic perspective, this is not a good tax to raise. Figure B1 shows our estimate of the effect of this rise on key economic variables: it increases inflation and interest rates, and reduces growth and employment. Indeed, we find that the economic damage of the tax increase hits even before it comes into effect, with markets, businesses, and the central bank anticipating the rise.