
Labour Government Policy Hub
Pay and tax
Policy
Strengthen Statutory Sick Pay
See Day one employment rights and unfair dismissal.
National Minimum Wage
The Government has promised to deliver a genuine living wage that accounts for the cost of living. It has changed the Low Pay Commission’s remit to factor in the cost of living when recommending minimum wage rates. It has also instructed the Low Pay Commission to narrow the gap between minimum wage rate for 18-20 year-olds and the National Living Wage as a first step towards achieving a single adult rate.
As a result, the following changes will be applicable from 1 April 2025:
-
National Living Wage (21 and older) will increase from £11.44 to £12.21 an hour.
-
National Minimum Wage for 18 to 20-year-olds will rise from £8.60 to £10.00 an hour.
-
National Minimum Wages for Under 18s and Apprentices will increase from £6.40 to £7.55 per hour.
- Daily accommodation offset will increase from £9.99 to £10.66.
Tax and National Insurance Contributions ('NICs')
The Labour Party’s manifesto said that there would be no increase to NICs, the basic, higher, or additional rates of Income Tax, or VAT.
The Autumn Budget, which took place on 30 October 2024, announced:
- No increases to Income Tax Rates (basic, higher or additional rates).
- No increases to employee NICs or VAT.
- Income Tax and NIC personal allowance thresholds will remain frozen until the 2028 deadline set by the Conservative Government. From April 2028, these will be uprated in line with inflation.
- The rate of employer NICs will increase by 1.2 percentage points, from 13.8% to 15% from 6 April 2025.
- The Secondary Threshold – the per-employee threshold at which employers become liable to pay NICs on each employee’s salary will reduce from £9,100 per year to £5,000 per year from 6 April 2025 until 6 April 2028 and then increase by CPI thereafter.
- The Employment Allowance will increase from £5,000 to £10,500 and be extended to all eligible employers by removing the £100,000 threshold for eligibility. Meaning that 865,000 employers will pay no NICs next year.
Internships and Apprenticeships
The Government has indicated it wants to ban unpaid internships, except when they are part of an education or training course. The Government planned to launch a Call for Evidence on this by the end of 2024, but this is still awaited.
In the King’s Speech, the Government also announced the Skills England Bill (not yet introduced), which would establish Skills England and bring together businesses, providers, unions, Mayoral Combined Authorities and national Government to ensure there is a highly trained workforce in England. As part of phase one, Skills England was established in shadow form in July 2024 within the Department for Education with plans to be fully established in 2025. As part of this body of work, the Government also announced changes to the funding of apprenticeships in England. We don’t yet have details, but the Government plans to replace the existing apprenticeship levy with a new growth and skills levy. The Government has said it will engage with employers and other stakeholders on the skills needed.
Private equity
The manifesto said that “Private equity is the only industry where performance-related pay is treated as capital gains. Labour will close this loophole.” Provision for this was specifically included in its fiscal plan in the manifesto too.
The Government introduced a call for evidence on this topic, which closed on 30 August 2024. It was announced in the Autumn Budget 2024 that there will be a phased approach to reforms in respect of the tax treatment of carried interest:
- Phase one - Capital Gains Tax rates on carried interest will be increased to 32% from 6 April 2025; and
- Phase two - from April 2026 carried interest will be taxed fully within the Income Tax framework, with “bespoke rules”
If the taxation position for carried interest changes, this would have an impact on the incentivisation structures in Private Equity.
Capital Gains Tax ('CGT')
It was announced in the Autumn Budget 2024 that for CGT:
- Lower rate - will increase from 10% to 18% for qualifying disposals made on or after 30 October 2024; and
- Higher rate – will increase from 20% to 24% for qualifying disposals made on or after 30 October 2024
- These new rates will match the residential property rates, which will be unchanged at 18% for the lower rate and 24% for the higher rate.
- The rate for Business Asset Disposal Relief and Investors’ Relief will increase to 14% from 6 April 2025 and will increase again to match the lower main rate at 18% from 6 April 2026.
Tacking tax non-compliance in the umbrella company market
-
Alongside the Autumn Budget 2024, the Government published a policy paper indicating that it will legislate to change the responsibility for who must account for Pay As You Earn ('PAYE') and NICs where an umbrella company is used in a labour supply chain to engage a worker.
- The policy paper indicates that responsibility for managing PAYE/NICs will move from the umbrella company to:
- the agency that supplies the worker to the end client; or
- if there is no agency involved in the supply of the umbrella company worker - the end client.
- This means that either that such agency or, the end client itself will be legally responsible for operating PAYE on the worker’s pay and will be liable for any shortfall.
- This will take effect from April 2026.
Timing and developments
- Minimum wage: New rates will increase on 1 April 2025.
- Tax and NICs: Timings vary but increases to employer NICs will apply from 6 April 2025
- Internships and apprenticeships: Plans to launch a call for evidence on unpaid internships was promised for later in 2024 so likely early 2025. Skills England to be established fully, with introduction of the new growth and skills levy and other apprenticeship reforms likely to commence during 2025/26 – although timings are not yet known.
- Private equity carried interest: Phase one of CGT rate increases will apply from 6 April 2025. Phase two of taxing carried interest as Income Tax will apply from April 2026.
- CGT: Increase to rates will apply to qualifying disposals made on or after 30 October 2024.
- Tax responsibility in umbrella companies: April 2026. The Government has also said it will set out full details of how this measure will operate in the coming months, alongside draft legislation ahead of its introduction to Parliament as part of the Finance Bill 2025. The Government will engage with stakeholders to ensure that they have the opportunity to provide feedback.
Sources
Plan to Make Work Pay, Labour Party Manifesto, Background Briefing Notes to King’s Speech, separate announcement on 30 July 2024 and call for evidence, Employment Rights Bill, Next Steps to Make Work Pay, Skills England Report.