The retail and hospitality sectors will feel the increased staff costs more than most. Ian Taylor reports
Travel businesses will have to cope with a significant rise in staff costs following last week’s Budget
Employers’ national insurance contributions (NICs) will rise by 1.2 percentage points to 15% from April, while the earnings threshold at which businesses pay NICs will fall from £9,100 to £5,000. This measure alone is forecast to raise £25 billion of the £40 billion a year in additional tax Chancellor Rachel Reeves is seeking.
This will come alongside a 6.7% increase in the national living wage, to £12.21 an hour, from April – with a bigger percentage rise for younger workers.
There was some good news, with 40% business rates relief to be maintained through 2025-26 when it had been planned to remove the relief from April.
The Treasury also promised “permanently lower business rates for retail, hospitality and leisure properties from 2026-27”, by increasing rates on bigger businesses including “large distribution warehouses used by online giants”.
Reeves suggested: “Businesses will have to make a choice whether they absorb [the increases] through efficiency and productivity gains, or through lower wage growth.”
But the Institute of Fiscal Studies warned the rise in NICs would increase the risk of job losses among lower paid staff.
Deloitte UK head of tax policy Amanda Tickel noted Reeves also increased employers’ NICs allowance, meaning “around 200,000 businesses won’t pay anything at all” following the changes. But she warned: “Businesses with large workforces on lower pay – in particular, the retail and hospitality sectors – will feel it more. Businesses will have to make difficult choices.”
However, Tickel added: “The government wants to create a more certain environment for business so set out a corporate tax roadmap. It will keep the 25% corporation tax rate, keep full expensing of capital allowances and R&D [research and development] rates and rebates, and consult on expanding the roadmap in 2025.”
Deloitte UK chief economist Ian Stewart described the tax rises as “exceptional” but noted that while they “fall overwhelmingly on the corporate sector, they will flow through to households ultimately”.
Ryanair was quick to condemn a rise in air passenger duty (APD), with chief executive Michael O’Leary denouncing it as “idiotic” and warning: “Ryanair will review its UK schedules and expects to cut capacity to/from UK airports by up to 10% in 2025.”
In fact, the economy rate of APD on short-haul international flights won’t rise next year but increase by £2 to £15 from April 2026 – the first increase in 14 years. The premium short-haul rate will rise next April by £2 to £28 and by another £4 to £32 in 2026.
Long-haul rates will be more heavily impacted, with a rise of £2 in economy and £22 in premium next year, with further increases of £12 in economy and £28 or £29 in premium depending on the band in 2026.
That will take the APD rate on business and premium economy seats on flights over 2,000 but under 5,500 miles in length to £244, and to £253 on longer flights from April 2026.
The annual tax take from APD is projected to rise as a consequence by £2.5 billion by 2030.