As we step into the new tax year starting on the 1st of April 2025, two major financial changes have come into effect. Employer’s national insurance increased by 1.2% from 13.8% to 15% and the minimum wage increased from £11.44 to £12.21 an increase of 6.7%. Whilst these increases are aimed at strengthening the workforce and supporting economic stability, they could also bring negative effects which will be felt across the built environment.
So, what has changed and what does it mean for the construction industry going forward?
Employers National Insurance: A 1.2% increase that adds up.
Employer’s national insurance contributions have risen by 1.2% from 13.8% to 15% and the insurance payable is decreasing from £175.00 to £96.00 a reduction of £79.00. for context if an employee is getting paid £625.00 a week, companies will be paying an additional £17.25 per employee per week.
For companies operating on tight margins this increase is not trivial. The result of this increase will force companies to raise prices for their services or products to absorb this added expense, ultimately impacting across the supply chain, resulting in all aspects of a construction project increasing. Reports suggest that a 0.75% to 1.0% increase to construction projects is expected due to the increase in National Insurance contributions. This percentage increase will have a significant impact on the overall construction cost, potentially resulting in hundreds of thousands in additional costs.
These additional costs will compel companies to seek savings elsewhere to remain competitive when tendering their product or services. Unfortunately, this can then lead to inferior materials or products being chosen impacting on the quality of the end product. These decisions may only be minor but can lead to significant future issues within a project such as, delays, increased maintenance requirements and a reduced life span of a completed project.
Minimum Wage rising: A domino effect.
The national minimum wage has increased from £11.44 to £12.21 a 6.7% uplift. While this is great news for employees especially workers on the national minimum wage, it can offer challenges for employers across the whole of the construction industry.
Increased Labour & Material Costs
With the minimum wage increasing this will no doubt directly increase labour & material costs across the sector. Within the built environment there are a plethora of roles which are directly connected to the national minimum wage. This will in turn force companies to increase costs to cover this additional expenditure, impacting.
Recruitment and Retention of Employees
The increase in the minimum wage might make roles within the construction company more appealing to potential employees. The construction industry can be seen as undesirable for people, but the minimum wage increase might change people’s outlook on lower skilled jobs in the industry, prompting a rise in employment. It could also have a negative effect as the people already in roles within the sector may now demand a wage increase off the back of the minimum wage increasing. This will then have a knock-on effect throughout costs for the whole industry.
Wrapping it up: What is next?
April 2025 marks a turning point for the construction industry bringing potential better wages and retention of employees across the sector. These changes could also negatively impact construction as cost’s rise and companies struggle to accommodate the increased costs across the board. In conclusion the rise in national insurance and minimum wage will bring better stability to employees financially but could pose as a threat to companies with tight profit margins as the supply chain costs increase to cover the rising costs.
