Changes also include higher employment allowance and the inclusion of inherited pensions in the inheritance tax system.
Delivering her first Budget statement as chancellor today (30 October), Rachel Reeves said national insurance (NI) payable by employers would rise to 15%, while the secondary threshold above which NI is payable is to be cut from £9,100 to £5,000.
While she recognised that this was an additional cost to businesses, Reeves argued that “successful businesses depend on successful schools, and healthy businesses depend on a healthy NHS”.
However, the chancellor also announced that the employment allowance would be raised to £10,000, which she said would mean more small employers pay no national insurance, and around one million would pay the same or less.
Elsewhere, Reeves said the Treasury would bring inherited pensions into the inheritance tax regime from April 2027.
Income tax thresholds will remain frozen until 2028 in line with the previous government’s policy, but this will not be extended, Reeves said.
This means that more people will become subject to income tax over the next three financial years. After the freeze expires, the threshold will rise in line with the retail prices index, the chancellor said.
Meanwhile, Reeves also promised £1.3bn in new funding for local government and further financial independence for the Greater Manchester and West Midlands local authorities.
Earlier in the day, prime minister Sir Keir Starmer wrote on social media: "After 14 years of decline, we will invest in our country – rebuilding our schools, hospitals and roads.
"We won’t shy away from the tough decisions to grow our economy and protect working people's payslips. There is a brighter future ahead."
Nigel Peaple, chief policy counsel at the Pensions and Lifetime Savings Association (PLSA), said: “Contrary to the many rumours that the Budget would undermine pension saving by reducing or removing fiscal support to pensions in general, we were very pleased to see that this did not take place. Most people in the UK need to save more, not less, into a pension to have a good retirement income.
“Plans to make inherited pension pots subject to inheritance tax will impact a small minority of individuals. It is the PLSA’s view that money saved into a pension should be used for paying retirement income for the saver or their spouse or civil partner.
“We welcome the focus in this Budget on investment, in particular, the change to the fiscal rules to support public investment and the promise of policy certainty provided by a long-term modern industrial strategy. We also welcome the government’s use of the British Business Bank and the National Wealth Fund to facilitate pension fund investment in the UK, as we’ve recommended.”
