Where the £4bn overshoot came from

The headline policy change took effect on 6 April 2025: the main rate of employer NICs climbed from 13.8% to 15%, while the secondary threshold, the point at which contributions begin, dropped from £9,100 to £5,000. Together, the two levers widened both the rate and the base. The Treasury originally forecast the combined measures would raise approximately £24bn in the 2025-26 fiscal year, according to Budget documentation published at the time.

The actual increase was £28bn, taking the annual bill from £116bn to £143.9bn, figures compiled by UHY Hacker Young, the national accountancy group, show. Phil Kinzett-Evans, a partner at the firm, said the overshoot could not be attributed to wage inflation alone.

"The increase in NIC has caused real pain for UK businesses and I'm not sure that the policymakers recognised or admitted this when they increased the tax."

Several factors appear to have compounded the original estimate. Nominal wage growth remained firm through much of 2025, meaning more earnings fell above the new, lower threshold. At the same time, employment levels held up better than some forecasters expected in the first half of the fiscal year, broadening the contributor base before hiring began to cool.

Whitehall cushioned the blow for the public sector, with roughly £5bn earmarked to offset the higher bill, including £515m ring-fenced for local authorities, according to UHY Hacker Young's analysis. Private employers received no equivalent offset.

What it costs per employee, and who absorbs it

The dual change, a higher rate plus a lower threshold, means the additional cost is not uniform across salary bands. A simple illustration shows how the arithmetic works for three common pay levels.

For an employee earning £25,000 a year, employer NICs under the old regime (13.8% on earnings above £9,100) would have been roughly £2,194. Under the new rules (15% on earnings above £5,000), the bill rises to £3,000, an increase of approximately £806 per head.

At £35,000, the old cost was approximately £3,574; the new cost is £4,500, a jump of around £926.

At £50,000, the figures move from roughly £5,644 to £6,750, adding about £1,106 per employee.

The lower threshold is the sharper instrument at the bottom of the pay scale. For a worker on £12,000, the previous NIC charge was roughly £400; it is now £1,050, more than doubling the employer's cost. That matters disproportionately in sectors such as hospitality and retail, where large workforces sit at or near the National Living Wage.

The question of who absorbs the increase has, in practice, split three ways: employers cut headcount, raise prices, or compress future wage offers. Research by Reed, the recruitment firm, found that 46% of businesses said the NIC rise would influence their hiring decisions, according to the company's survey data.

High-street fallout: redundancies, price rises and hiring freezes

The consequences are already visible. A string of redundancy announcements in hospitality and retail over recent months have explicitly cited the NIC increase as a contributing factor, as reported by BM Magazine. Recruitment activity has slowed as firms recalculate the fully loaded cost of each new hire before signing off on headcount.

For operators running thin margins, the maths is stark. A 50-person hospitality business paying an average salary of £24,000 faces an aggregate NIC increase of close to £40,000 a year. That sum is roughly equivalent to two full-time roles at the same pay level, creating a direct trade-off between retaining existing staff and maintaining service capacity.

Some businesses have opted for price rises instead. Consumer-facing firms with enough pricing power have passed a portion of the cost through to customers, a dynamic that feeds into services inflation and complicates the Bank of England's rate-setting calculus. Others, particularly those competing on price in discretionary spending categories, have found that option closed off by weak consumer demand.

A third cohort has deferred investment rather than cut jobs immediately. Capital expenditure plans, technology upgrades and expansion programmes have been pushed into future financial years while boards wait for greater clarity on the fiscal trajectory.

The Employment Rights Act layer

The NIC increase does not arrive in isolation. The Employment Rights Act, expected to take full effect from 2026, introduces day-one unfair-dismissal rights, a default right to flexible working, and other compliance obligations that add cost to the same payroll line. For businesses already absorbing a higher NIC bill, the layering effect narrows the margin for manoeuvre further.

Kinzett-Evans noted the unfortunate timing. "It's now fairly widely recognised that the level of tax in the UK has got too high," he said, according to UHY Hacker Young's published commentary. "Businesses need to see a sensible economic plan that sees a reduction in the business tax burden."

What operators should watch at the next fiscal event

The £4bn overshoot gives the Chancellor both a problem and, potentially, a sliver of room. Higher-than-expected receipts improve the near-term fiscal arithmetic, but the political cost of visibly suppressing private-sector employment is mounting. Business groups are already pressing for relief ahead of the next fiscal statement.

Several possible adjustments are being discussed in policy circles, though none has been confirmed. A partial reversal of the threshold reduction, restoring the secondary threshold closer to its previous £9,100 level, would offer targeted relief to employers of lower-paid workers without changing the headline rate. An expansion of the Employment Allowance, which currently shelters smaller employers from the first slice of their NIC bill, is another option that would concentrate relief on SMEs.

Operators planning headcount and pricing decisions for the remainder of the fiscal year should monitor three signals closely: the Office for Budget Responsibility's updated NIC receipt forecasts, any movement on the Employment Allowance in pre-fiscal-event consultations, and the implementation timeline for the Employment Rights Act's secondary legislation.

The gap between forecast and reality, £4bn in a single year, is a measure of how sharply the policy has bitten. For private-sector employers carrying the full weight of the increase without a public-sector-style offset, the next fiscal event is not an abstract calendar date. It is the nearest opportunity for the burden to be recalibrated.