If it was up 2 me

Category: employers-national-insurance

  • Pay Increases vs Inflation in 2025: Who Really Benefits?

    Pay Increases vs Inflation in 2025: Who Really Benefits?

    A Critical Look at Government Claims and the Real Economic Impact

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    Introduction

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    In 2025, the government has asserted that rising pay combined with falling inflation is a win-win for everyone. However, a closer examination reveals a more complicated picture. With average pay rises of 6.6% in the public sector and 4.2% in the private sector, set against an October inflation rate of 3.6%, it is vital to assess whether these increases genuinely benefit workers, and to explore the broader implications for the economy.

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    Pay Rises in 2025: Public vs Private Sector

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    The figures for 2025 paint a tale of two economies. Public sector workers have seen average pay increases of 6.6%, while their private sector counterparts have received an average 4.2% rise. At first glance, both groups may appear to be better off – their nominal pay packets have grown compared to the previous year.

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    However, these headline numbers do not tell the full story.

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    Inflation Context: The October 2025 Rate

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    Inflation, the general rise in prices, stood at 3.6% in October 2025. This means that, on average, the cost of goods and services increased by 3.6% over the previous year. For a pay rise to deliver a real-terms increase in living standards, it needs to outpace inflation. Anything less, and workers may find their extra income is simply absorbed by higher prices.

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    The Impact of Tax, National Insurance, and Pensions

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    Most workers do not receive the full benefit of their pay increases. Standard deductions include income tax (20%), national insurance contributions (8%), and typical pension contributions (5%). Combined, these deductions reduce the headline pay rise by around 33%. In effect, only two-thirds of any pay increase actually reaches workers’ pockets.

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    For example, a £1,000 nominal pay rise leaves just £670 after deductions. This significant reduction means that even a pay rise which appears healthy on paper may not be enough to keep pace with rising costs, especially for those in the private sector where increases are already more modest.

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    Public vs Private Sector: Who Gains, Who Loses?

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    Once deductions and inflation are taken into account, the real-terms situation becomes clear. Private sector workers, with an average 4.2% pay rise, see their increase reduced to roughly 2.8% after deductions. Since this is lower than the 3.6% inflation rate, their real income has actually fallen – their pay does not stretch as far as it did last year.

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    Public sector workers, on the other hand, fare slightly better. Their 6.6% average pay rise, reduced by one third, results in about a 4.4% net increase. After accounting for inflation, public sector workers enjoy a real-terms pay rise of around 0.8%. This is only possible because public sector pay is directly funded by the government, which can make policy decisions to support higher wage settlements.

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    The Employer National Insurance Factor

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    For private sector employers, pay rises are not just a matter of higher wages. They must also pay employer national insurance contributions on increased salaries, adding further costs. This additional expense can lead employers to restrict pay rises, limit hiring, or even reduce jobs. As a result, the private sector faces a double squeeze: rising costs and limited ability to pass on pay increases that match inflation.

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    Economic Consequences: Shrinking Private Sector, Public Sector Pressures

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    The uneven distribution of pay rises has wider economic implications. If private sector pay lags behind inflation, workers’ purchasing power drops, which can suppress consumer spending and slow economic growth. Fewer jobs or lower pay in the private sector also mean less tax revenue and higher welfare costs for the government.

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    Conversely, sustained above-inflation pay rises in the public sector, funded by the government, raise questions about long-term sustainability. With public finances already under pressure, continued high wage settlements and generous pension commitments could strain budgets, potentially leading to higher taxes or cuts in services elsewhere.

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    Summary and Conclusion

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    The government’s claim that rising pay and falling inflation benefit everyone does not bear out under scrutiny. In 2025, private sector workers are losing out in real terms, as their take-home pay increases lag behind inflation after deductions. Public sector workers are better protected, but only because government funding has enabled pay rises that outpace inflation – a situation that may not be sustainable in the long run. We cannot keep increasing taxes on the private sector to cover the public sector. You will end up with no workers.

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    The knock-on effects include increased pressure on private sector employers and potential job losses, alongside growing fiscal challenges for the public sector. In reality, the benefits of rising pay and falling inflation are unevenly distributed, and both employees and policymakers must recognise the complexity behind the headline figures if they are to make informed decisions about the country’s economic future.

     

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    • Rachel Reeves’ Licensing Oversight: Why the Focus Needs to Shift to Bigger Issues

      Rachel Reeves’ Licensing Oversight: Why the Focus Needs to Shift to Bigger Issues

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      Examining the Real Challenges Facing Britain Beyond Political Point-Scoring

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      Rachel Reeves, the Shadow Chancellor, has found herself under scrutiny in recent days for failing to obtain a selective licence while letting out her house during her stay at Number 11. This incident, though perhaps an administrative oversight by her letting agent, has sparked a media and political storm. It is worth considering both the significance of her mistake and whether the attention it receives is proportionate, especially when set against the backdrop of the more pressing problems facing the country.

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      Rachel Reeves’ Licensing Oversight

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      The law requires landlords to obtain the appropriate selective licences when letting out property in certain areas. Rachel Reeves’ failure to comply with this regulation, regardless of whether it was her agent’s fault, constitutes a breach for which she should be held accountable. Just as an individual cannot plead ignorance if they fail to pay their TV licence, politicians are not above the law and must face the same penalties as ordinary citizens. If a fine is due, it should be paid, and the matter put to rest.

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      However, critics have seized on this issue, making political hay rather than focusing on Reeves’ performance in her official capacity. Questions about whether she has paid the correct tax, stamp duty, or council tax are fair, but the intensity of the reaction from opposing parties raises the question of priorities. Is this truly the best use of Parliament’s time and energy?

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      Political Distraction: Missing the Bigger Picture

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      The spectacle of politicians pouncing on minor infractions detracts from the serious issues that affect everyday Britons. Instead of fixating on individual mistakes, the opposition—and indeed all parties—should turn their attention to the broader challenges that impact quality of life across the country. Let us explore some of these pressing problems in detail.

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      1. Boat Crossings: Weather as the Only Deterrent

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      Illegal boat crossings across the Channel remain a contentious issue. So far this year, the most effective deterrent to these crossings appears to have been unfavourable weather conditions rather than government policy. This highlights a critical failure to introduce robust, humane, and effective measures to address the root causes of migration and manage the UK’s borders. Without a comprehensive strategy, the government risks ceding control to circumstance rather than policy, leaving both migrants and local communities in a state of perpetual uncertainty.

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      2. The “Two In, One Out” Policy: A Questionable Approach

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      The government’s “one in, one out” policy is not a solution to the countries problems as previously highlighted. It didn’t take a rocket scientist (I am not a Rocket Scientist) to predict that it was only a matter of time that those being deported would return on a Small Boat.

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      3. Next Month’s Budget: Redefining the Working Class

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      With the upcoming Budget, there is growing concern over the government’s definition of “working people,” now apparently set at those earning under £48,000 per year. This threshold risks excluding many who work overtime, hold multiple jobs, or strive to provide for their families. By narrowing the definition, the government could alienate middle-income earners who feel the squeeze of rising costs but do not qualify for targeted support. A more nuanced understanding of economic hardship is needed to ensure that policies address the realities of modern working life.

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      4. Mounting Benefit Bills

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      Britain’s welfare system is under immense strain, with benefit bills continuing to rise. This trend reflects both an increase in the cost of living and the persistent challenges faced by vulnerable populations. The debate surrounding benefits often devolves into arguments about dependency, but the underlying issues—such as low pay, insecure employment, and high housing costs—require thoughtful solutions. Reform efforts must focus on creating pathways out of poverty rather than simply cutting costs.

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      5. Mounting Unemployment and Hidden Figures

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      Official unemployment figures may not tell the whole story. There is growing suspicion that some individuals are counted as disabled rather than unemployed, masking the true scale of joblessness. In addition, the cost of Employers’ National Insurance (NI) is viewed by many as a deterrent to hiring, particularly within small businesses. For the working class, these factors combine to make stable employment harder to secure and sustain, undermining economic recovery and social cohesion.

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      6. NHS Waiting Times and Systemic Strain

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      The National Health Service (NHS) is facing unprecedented pressures, with waiting times at Accident & Emergency (A&E) departments reaching unacceptable levels. Personal experiences reveal that while frontline staff remain dedicated and compassionate, there are glaring issues with system coordination and management. As winter approaches, the situation is likely to deteriorate further, placing patients at risk and staff under unbearable strain. Addressing these challenges requires investment, innovation, and a willingness to rethink how healthcare is delivered.

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      Conclusion: Refocus on What Matters

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      Rachel Reeves’ licensing oversight deserves to be addressed in accordance with the law, but it is not a matter that warrants days of political grandstanding. The real work of opposition—and indeed government—should be to tackle the substantive issues that affect millions of Britons every day. From border security and regulatory reform to the cost of living, unemployment, and the future of the NHS, these are the challenges that demand our leaders’ attention. Only by focusing on what truly matters can politics begin to serve the people, rather than itself.

    • April 2025 Employers’ National Insurance Changes: A Critical Analysis and Alternative Approach

      April 2025 Employers’ National Insurance Changes: A Critical Analysis and Alternative Approach

      How the Latest NI Reforms May Undermine Economic Growth, and What Should Be Done Instead

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      Introduction

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      From April 2025, UK employers face a significant shake-up in their National Insurance (NI) obligations. The government’s new policy will see the employer NI rate rise from 13.8% to 15%, while the threshold for employer contributions drops from £9,100 to £5,000 per year. This change, introduced despite pre-election assurances from the Labour Party against NI hikes, has sparked debates across the business and economic landscape. In this blog, I will critically examine the impact of these reforms, explore the projected financial implications, and offer an alternative path forward—one that better supports employment and economic expansion.

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      The Policy Change: What’s Actually Happening?

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      The two-pronged NI reform includes:

      • An increase in the employer’s NI rate from 13.8% to 15%—raising the cost for every pound earned above the threshold.
      • A dramatic reduction in the threshold at which employers begin to pay NI, from £9,100 to £5,000 per year—meaning many more jobs will now attract employer NI contributions.

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      These measures will affect virtually every UK business, from small enterprises already struggling with rising costs, to larger firms with substantial payrolls. For many employers, this represents a double hit: higher rates, and a wider base of employee earnings subject to NI. The government’s stated aim is to boost Treasury revenue, but at what cost?

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      Promises Made and Broken: The Political Context

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      It is impossible to ignore the political context surrounding these changes. Before the last general election, the Labour Party repeatedly promised not to increase National Insurance. Yet, the government has now implemented a policy that could be interpreted as a stealth tax on employment itself.

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      Some will argue that the state needs revenue to fund public services, particularly in a time of fiscal pressure. Yet the method and timing of this change have raised alarms—not least because the increased burden falls squarely on the shoulders of employers, potentially undermining job creation and business growth at the very moment when the economy most needs them.

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      Financial Impact: Where Will the Money Go?

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      The government estimates the NI reform will raise between £23.8 and £25.7 billion over five years. However, this headline number requires a closer look. After accounting for the increased cost of public sector employer contributions—effectively money moving from one government pocket to another—the net revenue gain drops to between £19.1 and £20.6 billion over five years.

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      But the story doesn’t end there. The rise in employer NI contributions will reduce company profits, which in turn means less corporation tax will be paid—potentially reducing government tax revenue by a further £5 billion over the same period. The real net gain, therefore, may be closer to £15 billion over five years, or just £3 billion per year.

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      Is this the economic boost the government claims, or a short-sighted grab that risks long-term damage?

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      The Cost to Business: Jobs and Investment at Stake

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      By making it more expensive to employ staff, especially lower-paid workers, these changes could force many businesses to freeze hiring, cut jobs, or even reduce wages. At a time when the UK already faces significant economic headwinds—high inflation, flatlining productivity, and global competition—this policy risks compounding, rather than resolving, existing problems.

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      Let’s put the numbers into perspective:

      • Reversing the NI changes would leave £4 billion with businesses—capital that could be used for investment, wage growth, or job creation.
      • This reversal could, by some estimates, save or create up to 160,000 jobs at an average salary of £25,000 per year.
      • Each of these jobs would bring in an estimated £3,977 per person per year in additional tax and NI, equating to £636 million annually.
      • Lower unemployment would reduce benefit payments by around £320 million, and increased consumer spending would generate another £160 million from VAT and other taxes.

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      These calculations suggest that supporting business growth could deliver greater tax revenue, lower welfare costs, and stronger economic performance than a blunt NI hike.

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      Unemployment and Economic Opportunity

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      The UK has around 11 million people aged 16 to 64 not in work, including 1.6 million officially unemployed (about 4.4%). Policies should incentivise businesses to hire, not put up barriers. If employment could be nudged up—reducing the unemployment rate from 4.4% to 4%—this could create another 160,000 jobs and generate a further £1.1 billion for the Treasury.

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      Instead, by increasing the tax on employment, the government is risking higher joblessness and missed opportunities for economic inclusion, particularly in sectors that already face labour shortages, such as construction.

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      Skills, Construction, and the Jobs of Tomorrow

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      Where would new jobs come from if government policy encouraged, rather than discouraged, hiring? Construction is a prime example. The UK is facing a shortfall of skilled tradespeople, and ambitious targets—such as building 1.5 million new homes in five years—depend on training new workers and supporting apprenticeships.

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      Yet, current policy seems at odds with these aims. Instead of investing in technical colleges and training, the government risks closing education facilities or failing to provide the infrastructure needed for workforce development.

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      Employers need certainty and incentives to invest in people, not new taxes on every additional job.

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      Alternative Approaches: Raising Revenue the Right Way

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      If the aim is to raise government revenue, there are more balanced and honest methods than bluntly increasing employer NI. My alternative proposal would be:

      • Reversing the employer NI increase, keeping rates at 2024/25 levels—releasing £4 billion annually back into business.
      • Recognising that businesses seek growth, not simply profit, and that economic expansion itself will widen the tax base.
      • Incrementally improving tax revenue through job creation, reduced unemployment benefits, and higher consumer spending.
      • If further revenue is needed, modestly increase Employee NI for higher earners (for example, increasing rates from 2% to 4% on earnings above £50,000).

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      Such a targeted approach would reverse the blanket NI reduction offered by the previous government. While it would mean higher contributions for those earning over £100,000, it would avoid penalising job creation and support a more progressive tax structure.

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      The Smoke and Mirrors of Tax Politics

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      Recent years have seen headline cuts to Employee NI—from 12%, to 10%, to 8%—with little change to personal allowances. Politicians have trumpeted tax cuts while allowing fiscal drag and stealth taxes to do much of the heavy lifting. It is time for greater transparency and honesty with the electorate.

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      The reality is that everyone may have benefited from lower NI rates, but the distribution was regressive: the highest earners saved most, and the gap between rich and poor has widened. Asking higher earners to pay a little more, while supporting employment for all, is fairer and more economically sound.

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      Summary and Conclusion

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      In summary, if it were up to me, I would:

      • Reverse the Employers NI changes to encourage more hiring and job creation.
      • Raise Employee NI on higher earners, essentially reversing the previous government’s NI reductions for those on over £50,000 per year, so that only those earning over £100,000 are worse off than in 2023/24.
      • This approach could add £3-4 billion to government revenue and support the creation of up to 320,000 new jobs.

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      Economic history shows that growth, not punitive taxation, is the best way to fund public services and support prosperity. The government should prioritise policies that incentivise employment, invest in skills, and create opportunities—rather than resorting to measures that risk stalling the recovery and undermining the UK’s long-term economic health.

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      The debate over National Insurance is more than a technical tax discussion; it is about the future of the UK’s economy, the fate of millions of workers, and the principles of fairness and honesty in public policy. Let us hope that policymakers choose the path of growth, opportunity, and transparency in the years ahead.

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