Source · Select Committees · Public Accounts Committee
Recommendation 4
4
Accepted
Conduct post-implementation review of National Insurance Contributions increase impact on local government services.
Conclusion
Neither MHCLG nor HM Treasury have assessed the impact that increases in national insurance contributions (NICs) will have on local government services. In April 2025, the NIC employer rate increased from 13.8% to 15% whilst the threshold at which employers start paying NICs on employee earnings reduced from £9,100 to £5,000 with the aim of raising more tax to fund the increase in public spending. In February 2025, government made £515 million available to support local authorities with the NIC-related increases in their direct employment costs. This amount was never intended to fully compensate local authorities, and neither MHCLG nor HM Treasury undertook an assessment of the indirect costs to local authorities. These increases will inevitably have implications, particularly for small charitable organisations, and knock-on effects to the markets, such as in Adult Social Care - which may result in private providers passing on cost increases to local authorities or handing back contracts. Some local authorities may be able to provide financial support to service providers for these increases in costs, but it is unacceptable that MHCLG and HM Treasury have not assessed how much impact this could have on local authorities. RECOMMENDATION Before the local government finance settlement, MHCLG working with HM Treasury should carry out a post implementation review of the increase in National Insurance Contributions and report back to the committee on: • the immediate impact on third-party providers and care markets; • the longer-term knock-on effect on the provision of local government services; and • any action that may be taken to reduce any adverse impact.
Government Response Summary
The government agreed to carry out a post-implementation review of the increase in National Insurance Contributions, focusing on impacts on third-party providers, care markets, and local government services, and will continue monitoring pressures through ongoing stakeholder engagement.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. assessment of increases in NICs on local government. At Autumn Budget 2024, the government set aside funding to support the public sector with the additional cost of employer NICs. The total support funding for the whole of the public sector amounted to £4.7 billion in 2025-26, inclusive of Barnett Consequentials. This funding was based on an estimate of the proportion of employer NICs receipts paid by public sector organisations, using the Office for National Statistics’ classification of the public sector boundary. This approach to estimating the cost of similar measures for public sector organisations is in line with the approach taken under the previous government. The total £4.7 billion support funding was allocated to departments and other public sector employers based on each employer’s total share of headcount, wage and salary costs. As part of this approach, HM Treasury assessed sectoral impacts, including potential pressures on local government due to increased costs for adult social care providers, before announcing the changes to employer NICs at Autumn Budget 2024. After Autumn Budget 2024, DHSC assessed and shared with MHCLG the impacts of employer NICs policy changes on the adult social care sector. In addition, MHCLG, working with the Local Government Association (LGA), assessed the level of funding required to compensate local government for the impacts of employer NICs changes on directly employed staff. At the provisional Local Government Finance Settlement, £515 million was announced to support local government to manage the impacts the employer NICs changes, alongside a methodology note explaining MHCLG’s intended distribution for employer NICs funding. The Settlement was then consulted on, and allocations were confirmed for the final Settlement, alongside other elements, including confirming £880 million in recognition of adult social care pressures. The government agrees with the Committee’s recommendation to carry out a post- implementation review of the increase in NICs on the areas outlined by the committee. The government will continue to monitor pressures on local government, including the impacts of employer NICs changes, through ongoing stakeholder engagement with local government and the care sector.