Impact of Autumn Budget on agriculture labour costs

​The changes stand to irreversibly damage farming with a disproportionate impact upon many Northern Ireland farm families.

In voicing our opposition to these changes, 6,200 people attended the UFU rally at the Eikon Exhibition Centre on 18 November and our office bearers delivered a petition “Overturn the Family Farm Tax”, with over 15,000 signatures to the Northern Ireland Secretary of State.

As we continue to demand that the changes are reversed, the full impact of the 2024 Autumn Budget is now starting to become apparent, especially when you factor in changes announced which will make the cost of employing labour more expensive.

Payroll and farming

Wages as a percentage of turnover, varies from industry to industry.

Service sector businesses, such as management consultancies, make payroll the major cost of the role they provide. Consultants are paid for their efforts and revenue is subsequently generated. These businesses can absorb higher payroll percentages since the payroll is, technically, producing revenue. There is likely to be no other significant costs in providing such services and advice, hence payroll can reach the 50% mark without denting profitability.

The problem is that farming cannot do this on account of the significant input costs (which includes payroll) upon which our businesses rely. Wages as a percentage of turnover for manufacturing, would be closer to 30% or less. This is because the business must endure the cost of manufacturing products as well as allocating payroll. This is not a scenario which is available to farming since margins are so fine, given input costs and volatile farmgate prices which are often below the cost of production.

As a percentage of payroll, flexibility of labour costs in farming does not exist. Namely, the flexibility does not exist in order to allow for increased labour costs to be factored into savings/efficiencies being found elsewhere in the business. What all this means is that profitability tends to be static and does not keep pace of the increasing cost of labour.

2024 Autumn Budget – Increase in labour costs

The labour cost increases announced by the Chancellor on 30 October 2024;

- Increase to National Minimum Wage/National Living Wage – From April 2025, the National Living Wage (NLW) will increase from £11.82 and £12.21 per hour. An increase of 6.70%. 18–20-year-old will see the National Minimum Wage (NMW) increasing from £8.60 to £10/hour, an increase of 16.3%, the largest increase on record.

- Employer National Insurance Contributions (NIC) - The Chancellor also unveiled a “difficult decision” to increase the rate of employer NIC by 1.2% to 15%. These changes will apply from 6 April 2025. The threshold at which employers start paying NI will also be reduced from £9,100 per year to £5,000 per year. The government is hoping to limit the impact by increasing the employment allowance, a relief on employer NI bills, from £5,000 to £10,500 and removing the £100,000 threshold.

According to HM Treasury, what this all means is that 865,000 employers will pay no National Insurance next year, but an increasing number of economists and now industry leaders are saying that higher NIC could deter employers from taking on staff and raising pay.

Yet the facts are these changes will put severe strain on those farms who rely upon paid labour.

Reaction to increase in National Living/Minimum Wage and Employer NIC

These cost increases will inevitably hit the public in their pockets as companies pass on these costs. Whether that’s lower pay rises for staff, cuts to future hiring or businesses passing on cost increases to customers. It’s a straightforward economics, burdens on business inevitably filter down, affecting workers, growth, and, in turn, the broader health of the economy. Writing to the British Retail Consortium, UK companies said the changes could result in £7bn of additional costs that would trigger job losses and higher prices for customers.

Impact on NI farm businesses

Incorporating PAYE analysis, including pension contributions, I have compiled a worked example as to what the Minimum Wage/NIC increase means for a farm employing labour. From April 2025, the cost of employing a 21-year-old will increase by 10% and for a worker aged 18-20, it will rise, in some instances, by a whopping 20%.

With farm businesses unable to absorb increasing labour costs, the impact of these increases in the Minimum Wage and Employer NIC, coupled with the IHT changes stand to threaten the viability and survival of Northern Ireland farming and we will continue to challenge these decisions at every level.