A Budget Burdern on Employers

The build up to the 2024 Budget was dominated by the pre-election promises made by the Labour Party.  As part of the manifesto, there was a promise not to increase tax or National Insurance Contributions (NIC) on working people.  Despite much debate on the definition of ‘working people’, it was clear that Employers’ NIC was likely to be increased in some form, together with an increase in the National Minimum Wage (NMW).

Employers’ National Insurance Contributions (NIC)

The rate at which Employers’ NIC is paid on an employee’s salary is currently 13.8%.  From April 2025, the rate will be 15.0%, an increase of 1.2%.  The Government have confirmed public sector employers such as the NHS will be shielded from the increases.  However, despite deriving the majority of their income from the NHS, GP Practices do not fall into the definition of public sector, and will incur the increases.

In addition, under current rules the threshold on employee earnings at which NIC applies is £9,100.  From April 2025 this will be £5,000, a reduction of £4,100.  The direct impact of this measure is a cost of £615 (£4,100 x 15.0%) per employee.

As an example, if a GP Practice employs a Nurse Practitioner earning £40,000, under current rules the Employers’ NIC paid by the practice would be:

£40,000 - £9,100 = £30,900 x 13.8% = £4,264

From April 2025 this would increase to:

£40,000 - £5,000 = £35,000 x 15.0% = £5,250

The additional cost to the GP Practice for employing the Nurse Practitioner would therefore be £986.

Employment Allowance (EA)

The EA currently enables eligible employers to reduce their Employers’ NIC liability by up to £5,000.

To absorb part of the cost of the increase in Employers’ NIC, the Government announced an increase in the EA to £10,500. 

However, if an employer’s activities consist of more than 50% from the public sector, they do not qualify for the EA, and will bear the full cost of the increase in Employers’ NIC.

At the time of writing, the Government are yet to announce whether there will be any funding via the NHS contract for the increases.

National Minimum Wage (NMW)

Following large increases in the NMW for 2024/25, the Government announced further above-inflation increases for 2025/26 as follows:

A 21-year-old employee working 37 hours power week on the minimum wage will see an increase of £1,482 (£23,492 - £22,010) in their salary. 

These rises, together with the increases in Employers’ NIC, present a significant increase in the cost base for GP Practices.  In the absence of any funding via the NHS Contract, this presents another significant challenge for Practice profitability in 2025/26.  Practices should be acting now to plan for the increases in costs and considering measures to maintain profit margins, such as utilising locums rather than salaried GPs, or reviewing other cost saving measures.  Maximising non-NHS revenue also remains a possible avenue for practices to subsidise the increasingly challenging environment Practices are operating in. 

If you would like to discuss the changes, please contact one of our healthcare experts.