As you will know there were significant changes to employers national insurance contributions in last week’s budget. We have been pressing MHCLG officials for clarification and after initially saying they thought our councils would be compensated they emailed us yesterday the following unhelpful reply:
“Following up on our exchange yesterday about this, I wanted to confirm the position we’ve got to with Treasury on the Budget increase in Employer National Insurance contributions and what it means for parish and town councils. I’m writing to confirm that town and parish councils will not be included in a package to compensate public sector bodies for this rise.
The policy set by the Chancellor is to compensate those who are direct public sector employees funded out of public money. Parish councils are not directly funded by central government and so do not fall into this category. I know that’s not the answer you were hoping for.
We recognise that this will require town and parish councils to make some difficult financial decisions, and in particular that many may need to raise their precept, and that some may need to make staffing cuts in order to meet these new costs. We understand neither of these decisions will be taken lightly by your members.”
We will of course be challenging some of the thinking behind this and implications for the sector when we meet them later this week and have provided them with the following further information
“Some further information I hope is helpful and which we can also cover on Thursday…
- England’s 10,000 parish and town councils are a type of local authority and part of local government and the public sector.
- Our understanding and analysis of the budget won’t come as a surprise and shows they are going to be hit by the reduction in the threshold at which employer’s National Insurance is payable.
- This is because the threshold will fall from £9,100 to £5,000 from 6 April 2025. And the employer NI rate will increase from 13.8% to 15% at the same time.
- Reference to public sector employers in budget documents and the OBR:
- The budget document present to Parliament, which says on page 12 of the full report: “The Treasury is also compensating public sector employers for employer NICs bills through increases to their budgets”. Autumn Budget 2024: A summary – House of Commons Library
- This repeats paragraph 3.12 of the OBR’s 30 October report, which says: “In addition, the Treasury is compensating public sector employers for higher tax costs due to the measure through higher RDEL budgets, which cost around one-fifth of the static yield raised by the end of the forecast period”. Economic and fiscal outlook – October 2024 – Office for Budget Responsibility
- We would also highlight the New Burdens Doctrine which as far as we understand is still in force, as it says:
- “2.1 To ensure that the pressure on council tax is kept down, the net additional cost of all New Burdens placed on local authorities (including parishes, police and fire and rescue authorities) by central government must be assessed and fully and properly funded”. New burdens doctrine: guidance for government departments – GOV.UK
- Below is some modelling:
- a parish council with an employee earning £9,100 will face an additional £615 cost next year, a 6.75% increase in their staffing costs before adding any pay increase.
- For larger councils, the impact is going to be at least £615 per member of staff, in addition to the 1.2% increase in contributions above £9,100.
- Even a parish council with an employee on £6,000 a year will find itself paying employers NI of £150, which requires a 2.5% increase in staff budgets in addition to any pay increase.
- Looking at the 2024/25 precept data and a quick estimate of the impact of the drop in threshold, the number of staff is our best guess (which is why we’ve been making to work with government on sector data eg via Oflog) with input from a partner organisation with experience as a clerk and hundreds of local council clients:
- 216 councils over £700,000, with an estimated 20+ staff – 4,320
- 690 more councils over £200,000, with an average of 5 staff – 3,450
- 2,746 councils £25,000-£200,000, with an average of 2 staff – 5,492
- 2,181 councils £10,000-£25,000, with an at least 1 staff – 2,181
- That’s 15,443 staff x £615 = £9,497,445, just from the change in threshold.
- On top of that, 1,536 councils between £5,000 and £10,000 partially affected, perhaps another £480,000.
- That gives a total of at least £10 million for England, just from the change in threshold.
- We don’t have detailed numbers for Wales, but it’s going to be at least another £1 million.
- It will require a 1.5% to 3% increase in council tax, just to pay for National Insurance, with the smaller councils having the highest increase – this is beyond what they were already planning in order to cope with current cost/demand pressures.
- Public bodies are not currently eligible for the employment allowance, which permits eligible employers to avoid paying the first £5,000 of employers NI contributions. The allowance is being increased to £10,500 to offset reducing the threshold to £5,000, but this doesn’t help local authorities that are not entitled to the allowance. There appears to be no statement about extending the allowance to the public sector.
- As you will know, our councils are well into budget setting for next year and were not expecting these additional cost pressures.
- Our questions/areas we require clarity:
- Does MHCLG intend to compensate local government?
- If yes, will this extend to parish and town councils? And if so, what mechanism will be used to compensate parish and town councils?
- Is there any intention to extend the allowance to public sector bodies to avoid inflation-busting council tax increases next year?
- Is the new burdens doctrine still in force? And if not, when was it removed and what consultation took place?
Next steps
Briefing to CALCs and councils, including possible guidance for budget setting
Letter to treasury
MHCLG meeting Thursday
Super councils next week
Ongoing dialogue with LGA and SLCC, explore support for NCVO campaign
Regards
Jonathan
