There is uncertainty about how increased National Insurance contributions will be paid for in Wales. In her Budget in October, chancellor Rachel Reeves announced that from next April, employers will have to pay more National Insurance contributions.
The contribution will rise by 1.2% to 15% from April 2025 and the level at which employers pay contributions on each employee’s salary would be lowered £9,100 per year to £5,000, as part of a package of tax rises expected to raise £40bn.
The policy will raise £20bn a year, making it one of the biggest single tax-raising measures in history. The measure is expected to fall entirely on the private sector, with public employers such as government departments and the NHS will be reimbursed to avoid them having to make cuts to fund the difference.
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Ms Reeves, as well as think thanks and the government’s independent forecaster all said it will mean businesses are likely to respond by holding back on pay rises. The Institute for Fiscal Studies (IFS) said the rise in employer National Insurance contributions will affect larger firms hiring people on low wages the most, while the Resolution Foundation think tank described the move as a “tax on working people”.
Wales’ finance minister Mark Drakeford has admitted there was no mention of how much money Wales would get towards the contribution rise because he will not be told that by the UK Government until May or June 2025 – months after the change comes in.
On Wednesday, December 11, the chief executive of Wales’ Amgueddfa Cymru said it would face a £500,000 annual bill to meet the obligations.
The day before in the Welsh Parliament during a debate about the draft budget, Plaid Cymru MS Heledd Fychan said: “Of the £1.7 billion in additional funding for the Welsh budget over the next two financial years, a large chunk will have to be swallowed up to offset the UK Government’s short-sighted decision to increase employer National Insurance contributions without reimbursing the cost for organisations and businesses that fall outside of the public sector, including third sector organisations and GP services.”
On Tuesday, in First Minister’s Questions in the Senedd, Conservative group leader Darren Millar had asked Eluned Morgan about the issue. She said: “Those national insurance contributions will be coming; if they’re directly employed, the additional funding will be coming from the UK Government” That was confirmed by Welsh secretary Jo Stevens in the Commons who said: “The Welsh Government will receive additional funds to help with the cost of national insurance contribution”.. For our free daily briefing on the biggest issues facing the nation, sign up to the Wales Matters newsletter here
Peter Fox, Conservative MS for Monmouthshire asked finance minister Mark Drakeford about the issue on Wednesday, December 11. “It is not only businesses who need to pay this, but public sector bodies, who employ the equivalent of 10% of the population, will also have to pay this tax rise. Now, I know the Chancellor has confirmed that additional money will be coming to Wales to pay for this increase. However, yesterday’s draft budget statement was still vague on detail. Cabinet secretary, when will we get clarity so that the fear of public services having to cover a portion or all of this cost will be removed?”
Mr Drakeford replied saying: “I don’t think that the draft budget was vague on the subject; the draft budget was silent on the subject, because there isn’t information that I have that allowed me to take account of any additional funding that will come from the UK Government to help those public service employees with national insurance contributions. We will not know from the UK Government how much money will come to Wales for those purposes until the Chancellor says in May or June of next year. What I have said, and I said it again this afternoon, I said it to local authority leaders earlier in the week, for these purposes the Welsh Government will simply act as a postbox. The money that comes to us for these purposes will simply leave us directly to go to those employers who have been covered by the Chancellor’s decision. We won’t divert the money anywhere, we’re not going to use it for anything else. Every penny that comes to us for this reason will go directly to those employers and it will go as fast as the money arrives with us.”