The recent Autumn Budget has introduced key financial changes with a particularly significant impact on Parish and Town Councils across the UK. For councils preparing to set precepts for the 2025-2026 financial year, these updates will require immediate attention. With the approach of budget season, councils must review and adjust their financial planning to navigate increased staffing and operational costs. Here’s a detailed breakdown of the changes and the steps councils should take to ensure a smooth precept-setting process.
Key Budget Changes Impacting Councils
1. Reduction in Employer’s NI Allowance
One of the biggest changes introduced is a reduction in the Employer’s National Insurance (NI) allowance, which has decreased by £4,100 per employee per year (from £9,100 to £5,000 per year).This allowance cut means councils will now need to cover additional NI costs, resulting in an immediate and direct increase in staffing expenses. For councils working with limited budgets, the impact of this allowance reduction will be felt across all staffing-related financial projections.
2. Increases in National Living Wage (NLW) and National Minimum Wage (NMW)
The minimum wage for over 21s, known officially as the National Living Wage, will rise from £11.44 to £12.21 from April 2025. For 18 to 20-year-olds, the minimum wage will rise from £8.60 to £10. Apprentices will see pay jump from £6.40 to £7.55 an hour.
It’s essential to factor in these updates to prevent unexpected expenses mid-year and ensure that wages are budgeted to align with new regulations.
3. Employer’s NI Rate Increase to 15%
On top of the reduced NI allowance, the Employer’s NI rate itself has risen to 15%, further increasing per-employee costs. These cumulative NI changes translate into higher payroll costs for each full-time or part-time employee and will affect council budgets, especially those with larger workforces. Councils must plan for this increase when setting their precepts to avoid future budget gaps.
4. Pension On-Costs Rising
With legislative changes aimed at strengthening pension schemes, councils must remain compliant with increased pension contributions. Rising on-costs for pensions require councils to pay close attention to their existing pension schemes, ensuring that the necessary budget adjustments are in place for the 2025-2026 financial year.
The Overall Impact on Council Budgets
In many cases, these combined updates from the Autumn Budget are projected to increase the cost per council employee by up to 20%. For councils already stretched thin, this is a substantial change that could impact service delivery if not carefully accounted for. Setting a realistic precept, backed by a detailed understanding of these costs, is crucial to maintaining financial stability throughout the year.
Next Steps: Preparing Your Budget for 2025-2026
As councils enter budget season, it’s vital to ensure that financial plans are prepared for the challenges ahead. Here’s a checklist of key actions:
- Update Staffing Costs to Reflect Budget Changes: Carefully assess your staffing budget, accounting for the reduction in NI allowance, increase in NI contributions to 15%, and higher minimum wage rates. Accurate staffing projections will help prevent gaps that could disrupt council operations.
- Account for Pension On-Costs: Review your current pension obligations and ensure that your pension contributions align with increased on-costs. Accounting for these costs is vital for compliance and to prevent unexpected pension expenses.
- Understand the Total Impact on Per-Employee Costs: With cumulative changes leading to potential increases of up to 20% in per-employee costs, councils should revise overall financial forecasts to ensure they accurately reflect these staffing expenses. Including these adjustments in your 2025-2026 budget will protect against shortfalls and help maintain smooth operations.
- Review Your Funding Allocations: This budgeting period is an opportunity to assess overall funding allocations for the upcoming year. Ensuring that funds are appropriately directed toward staffing, operational costs, and essential services will allow your council to continue providing necessary support to the community, even amid rising expenses.
Why It’s Important to Prepare Now
Taking a proactive approach to budget planning is crucial to a smooth precept-setting season. By closely reviewing financial plans, councils can address the increased costs introduced by the Autumn Budget, ensuring financial sustainability for the year ahead. With careful preparation, Parish and Town Councils can manage these financial impacts, set realistic precepts, and continue to serve their communities effectively.
In conclusion, the Autumn Budget’s changes bring both challenges and an opportunity for financial resilience. Early action is essential, so council teams are encouraged to start reviewing, updating, and planning for the new fiscal year to set their councils up for success.
Working Example: Calculating Increased Costs for 1 Staff Member
1. Employee’s Annual Salary
- Annual Salary: £28,000
2. Employer’s National Insurance Contributions
- NI Allowance Reduction: The NI allowance has decreased, with councils covering NI costs above the £5,000 threshold.
- Employer’s NI Rate: Increased to 15% on earnings above £5,000.
NI Calculation:
- Earnings above the threshold: £28,000 - £5,000 = £23,000
- NI Contribution: £23,000 × 15% = £3,450
3. Pension Contributions
- Assumed Pension Contribution Rate: 5%
- Pension Cost: £28,000 × 5% = £1,400
4. Total Annual Cost to the Council
Total Cost: £28,000 (salary) + £3,450 (NI) + £1,400 (pension) = £32,850
This example shows that, with the budget changes, the council’s cost for an employee earning £28,000 would be £32,850.
Increased cost of the budget for that employee would be £841.80
About Eleanor
Eleanor is Chief Accountant at Do the Numbers Limited as well as Secretary at the Internal Auditors Forum, trainer at Hampshire Association Of Local Councils and has been auditing accounts since 1997. Auditing for over 80 Town & Parish Councils.
Contact her on:
📧 EleanorGreene@dothenumbers.uk
🌐 https://www.dothenumbers.uk/
