British workers are expected to have potential annual salary increases slashed due to a looming tax raid, according to analysts.
The employer National Insurance Contribution rate is set to increase by 1.2 percentage points, bringing it to 15 per cent on eligible earnings.
This change, announced in Chancellor Rachel Reeves' Autumn Budget last October, marks a substantial shift in employer obligations.
Adding further pressure to businesses, the threshold at which employers begin paying NICs will drop from £9,100 to £5,000.
The expansion of the taxable base was part of the first Labour budget in over 14 years, delivered by Britain's first female Chancellor of the Exchequer.
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Reeves's tax raid is causing businesses to roll back salary increases
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One-third (33 per cent) of UK employers have already reduced their planned 2025 salary increases in response to the announced changes.
For these companies, the salary budget has fallen by approximately one per cent with planned wage increases down to three per cent on average.
The adjustment aligns salary budgets with current inflation rates, according to the National Insurance Pulse Survey.
However, as high performers typically receive larger portions of these budgets, many employees may face below-inflation pay rises.
Britons are concerned about the growing tax burden GETTYSalary reductions are not the only measures British firms are implementing to manage the impending NIC increase with almost half of surveyed companies planning additional HR changes.
Increased scrutiny around hiring tops the priority list for businesses, with 41 per cent of employers adopting this approach.
More concerning for the workforce, 28 per cent of businesses are planning cuts to employee headcount with a further eight per cent intending to implement hiring freezes across their organisations.
Companies are exploring other options too, including reviewing pension salary sacrifice arrangements. Some employers are also looking at reducing non-salary budget rewards.
These varied responses demonstrate how British businesses are adapting pragmatically to maintain competitiveness despite the increased tax burden.
Lindsey Clayfield, the senior director for Work and Rewards at Towers Watson, cited the significant trend reversal.
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PA"We were starting to see salary budget increases moving down towards pre pandemic levels, and the change to the Employer National Insurance contributions has accelerated this," she explained.
"We are now seeing salary budgets more aligned to the three per cent we last saw in 2019." Clayfield advised employers to be strategic with limited resources.
"Employers will need to be smart about how they allocate the salary budget increases, ensuring key and high performing talent is being rewarded effectively.
"Reviewing benefit offerings and non-monetary rewards can help support employee needs, particularly for those that might be affected by below inflation salary increases."
