Chancellor’s measures to increase national insurance contributions may lead to reduced pay rises for employees, impacting the cost of living

In a significant move, Chancellor Rachel Reeves has acknowledged that her recent tax-raising Budget could adversely affect wage growth for workers. Speaking to the BBC, she highlighted that businesses may struggle to absorb the increased National Insurance (NI) contributions, set to rise by 1.2% from April 2025, potentially resulting in smaller pay rises for employees.

Reeves stated, “I said that it will have consequences,” underscoring the potential impact of the policy on the workforce. The government anticipates that this measure will raise approximately £25 billion to support the NHS and other public services. However, the Institute for Fiscal Studies (IFS) has cast doubt on this figure, projecting that actual revenues may only reach £16 billion as companies may opt to limit wage increases in response to the new costs.

During a visit to a West Midlands hospital alongside Prime Minister Keir Starmer, Reeves reiterated the government’s commitment to NHS funding. Starmer described the Budget as a “down payment” on the future of the health service, though he acknowledged that staff workloads are likely to increase rather than decrease as a result of the funding measures.

This Budget marks Labour’s first in 14 years, featuring tax increases totalling £40 billion aimed at bolstering public services. Key points from the announcement reveal a concerted effort to address the country’s financial challenges while prioritising health and welfare.

In light of these developments, the implications of Reeves’s Budget will undoubtedly reverberate across the economy, with many workers facing a challenging financial landscape as businesses grapple with rising operational costs. As public scrutiny of the Budget intensifies, the real-world effects on wages, jobs, and the cost of living will be closely monitored