Agencies concerned by NI tax rise as they react to Labour’s first UK budget

In response, IPA director-general Paul Bainsfair highlights the tension between the government’s ambitions and the financial reality facing agencies. The agency trade body boss expresses concern that increased employer national insurance rates may hamper the ability of agencies to grow, despite their role as “growth engines.”

Bainsfair says: “The change to employer national insurance contributions represents a very significant increase in the cost base of agencies and threatens their ability to facilitate the growth the government says it is prioritizing. More broadly, agencies stand or fall on their talent. Moreover, shifts in employee rights significantly affect how agencies recruit, retain, and nurture the creative minds that are essential to our sector’s success.

“The chancellor also announces increases in CGT and the tax paid on carried interest. We are concerned that this may lead to a reduction in appetite for investment in agency businesses, whether by individuals or by financial sponsors. We just have to hope that this short-term pain will, as the Chancellor suggests, ultimately unlock vital long-term growth for the UK economy.”

“Pretty dreary for our industry” is how Iris Worldwide chair and co-founder Ian Millner describes today’s budget, saying “the long-term implications being the wearing down of what is normally a vibrant and globally competitive sector.” He goes on: “Increased capital gains tax rates might deter new ventures and exits, leading to a more cautious environment, at a time when being open to change and challenge is vital. For risk to work, the benefits available have to be meaningful, motivating and fair. With the budget failing to support the entrepreneurial spirit of our sector, we may lose more of the flair, spirit and swagger that enables us to help clients, as the gap between what agencies can do for clients and what clients can do for themselves diminishes further.”

Niki Hutchinson, founder and MD at LarkHill PR has read the entire 170-page report and welcome the focus on women within its pages, saying: “There was nothing unexpected in Rachel Reeve’s first Autumn Budget statement as the UK Chancellor. I could harp on about the increase in employers' NI contributions, a renewed focus on regions outside the Capital (well I am Northern) and investment in the creative industries. However, from an economic growth perspective, a welcome addition in the full report was a focus on women in the economy. From enhancing dismissal protection for pregnant women and new mothers, flexible working and school breakfast clubs, to guaranteed parental leave and addressing gender pay gaps. I may not have children, but policies that help women and parents to thrive in the workplace get my vote. Let’s hope they are not merely a series of performative statements and agencies across the industry not only take note but take action.”

Co-founder of re:act, Tom Stone, describes the budget as a challenging balance between pragmatic growth and fiscal responsibility. “Overall, it’s a reasonable budget,” he says, “however, the increase in employer national insurance pressures profit margins for many sectors such as hospitality, beauty, and other sectors with high labor costs. Coupled with the minimum wage rise, businesses need to seek efficiency improvements to navigate these tighter financial conditions. On a positive note, chancellor Reeves’ decision to maintain VAT and corporation tax rates boosts the UK’s attractiveness for investment – crucial for long-term stability. Confronting a significant £40 billion fiscal gap requires meticulous management.”

Chris Camacho, chief exec of Cheil UK, notes that the £40bn in tax increases, including higher national insurance for employers and adjustments to capital gains and VAT, will affect both consumer spending and business budgets. He explains that while public spending boosts are positive, agencies might face a mixed outlook, with rising costs potentially curbing marketing budgets.

Camacho says: “Reeves’ first budget introduces sweeping fiscal changes with a clear focus on national renewal. The £40bn in tax increases, from higher national insurance for employers to adjustments in capital gains and VAT on private school fees, impacts both consumer spending power and business budgets. For agencies, this budget brings a mixed outlook. While the rise in the national living wage benefits employees, businesses facing added costs may curb their marketing spend as a response. Reeves’ significant boost to public spending, especially in education and the NHS, is a positive shift, yet it may take time for these investments to bolster consumer confidence. Overall, agencies need to sharpen their value propositions and emphasize efficiency, as brands will likely scrutinize their marketing investments, aiming for ROI and measurable results in an uncertain landscape.”

Louise Rudaizky, managing director at Atomic London, says: "Agencies are navigating a challenging landscape as they deal with the ongoing economic rollercoaster and the fallout from Covid. Rising costs are putting additional pressure on them, and while the government insists that growth is a priority, we’re still waiting for meaningful action to support it. Unfortunately, the new budget lacks a clear growth narrative and strategy—something our industry desperately craves—and it fails to tackle the persistent economic issues left behind by the previous administration. With a tough road ahead, the agencies that will thrive in this environment are those that can create value for clients through the collision of diverse disciplines."

Rooster PR MD James Brookes raises concerns about the budget’s impact on smaller agencies, whose tight margins will be further strained by increased national insurance contributions. He says: “As a boutique PR and communications agency employing 25 people, the increase in employers NI squeezes our already tight operating margin even further, forcing us to hold back on recruitment when people are the beating heart of our offering. From a client perspective, the Budget ratchets up pressure for marketing spend to work even harder. While earned media plays a key role in winning over hearts and minds, commercial focus on demonstrated ROI will tighten, further intensifying PR’s traditional ‘nice-to-have’ and ‘it’s just fluff’ measurement challenges.”

Ali McClintock, head of UK&I at Dept, is critical of the government’s lack of emphasis on technology as a growth driver. “This year’s budget is titled ‘Fixing The Foundations To Deliver Change.’ Looking at the 170-page document behind all the headlines, what strikes me is that in the 66,539 words, ‘technology’ is mentioned only 34 times. Digging into this further, we see that rather than seeing our technology sector as a lever for growth, this budget predominantly looks to technology to find efficiencies in processes. Harnessing digital technology to drive better outcomes for public services and investing billions to boost NHS technology and digital to drive productivity improvements and free up staff time. Perhaps with a bit more time to digest these 66,000 words, some nuance will appear, but at first glance, it’s disappointing not to see technology, innovation, and AI at the heart of Labour’s plan to drive growth. To me, the foundations of delivering change in 2025 and beyond are firmly rooted in our tech sector.”

Julie Oxberry, CEO at Household again fears the impact of the NI increase saying it will hit recruitment in many agencies: "This budget marks a significant moment, and I was impressed by the firm delivery with a human touch. The first female Chancellor of the Exchequer, well done, RR! Focusing on protecting working people, fixing the NHS, and rebuilding Britain is essential. As an SME in the design industry, we contribute significantly to the UK economy with a mindset that combines creative and commercial value. Our industry, often overlooked, is a crucial part of the economic landscape. So, naturally, Household's unwavering focus is always on protecting and looking after our best asset; our creative team – our working people. The significant increase in Employer National Insurance contributions represents a significant additional financial burden and could be a disincentive to recruitment at a time when the government is trying to get Britain back to work. On the other hand, the extended support for the hospitality, entertainment, and retail sectors may enable our clients to invest more in our services as brand experience designers. Despite all this, as a proud B-Corp and responsible employer, we advocate for fair pay and support the government's increase to the minimum wage. This ensures we all prioritise our workers and provide a sense of security and confidence."

Managing partner of strategy at The Kite Factory, Rik Moore, describes the budget as pragmatic but questions its efficacy in making people feel financially better off. “There will be a vast majority of the public coming through with their finances relatively unscathed. However, given the relatively fine margins, critically, will it create enough of a difference that people feel things are getting better? This world unlocks a much-needed feel-good factor going into the festive season. The real pinch is felt by businesses, with many businesses seeing their business rates nearly double, plus the additional impact they feel from the cost of the increase to employers’ national insurance. This raises two key questions about how businesses afford those costs: for wider society, what knock-on effect that will it have on prices, and therefore on consumers’ pockets? For our industry, how do CFOs react to the news? Do they empower CMOs to spend to tap into any positivity, or do they look to marketing budgets to help make savings?”

Troublemaker CEO Simon Hankin finds a positive takeaway in the investment in skills development, despite acknowledging the increased burden on independent agencies. He says: “While we can’t ignore the hit to businesses with the increase in national insurance – which has a huge impact on independent agencies already facing financial burden – the positive takeaway for me is the promise of investment in developing employment skills and opportunities which we saw in the Labour manifesto actually being followed through. Agencies desperately need brilliant young talent that are able to enter the advertising industry with the right skills and fresh thinking. This is a great first step. The UK needs investment in education for creative subjects as a priority in order to attract and retain the best talent.”

Sam Budd, chief and founder of Buddy Media, expresses concern about the burden on SMEs, noting the lack of support for small and medium-sized businesses. “After putting in years of hard work and sacrifice to get Buddy off the ground, it’s tough to see the lack of support for SMEs, which are so important to the economy. I’m committed to my business and to staying in the UK, but I know many entrepreneurs might feel discouraged. The risk of businesses leaving the UK, or not choosing to operate in the first place, could lead to long-term problems for the SME sector and mean fewer taxes going into public services. We really need the government to focus on policies that help businesses grow, so the UK remains a place where entrepreneurs can thrive.”

Born Social chief Ben Tyson acknowledges the historic nature of the budget – the first delivered by a female Chancellor – but focuses on the challenges that lie ahead. He highlights the potential knock-on effect of increased taxes, which could lead businesses to pass on costs to consumers or cut expenditures, including marketing. “In the long run, we need improved public services, which are fundamental to marketing and especially agency businesses. The proposed tax increases, such as the rise in employers’ national insurance, inevitably have a knock-on effect. Businesses may either pass on these costs to consumers or cut back on expenditures, including marketing.

“Agencies that effectively communicate their essential role in driving client success fare better than those perceived as a luxury. The recent IPA Bellwether Report shows client spending flatlining, partly because of concerns around this budget. Yet, with the potential for innovation through technology, especially AI, and a focus on social and digital channels, the budget presents opportunities for agencies to adapt and thrive. Investments in initiatives aimed at boosting the transition to a greener economy and the reduction of duties on certain products could restore business confidence and encourage continued marketing investment, ultimately benefitting both agencies and their clients.”

Robert Hicks, chief exec at C-Screens, stresses the ramifications for workforce growth, pointing out that increased national insurance contributions make it harder for businesses to expand their staff. “The increase in national insurance contributions inevitably results in large ramifications on businesses like ours. It, no doubt, impacts the likelihood of being able to grow our staff base which likely results in increasing revenue year on year. Moreover, those employees expecting big pay rises may be disappointed with what companies can offer in relation to the above. It also hinders investments in all sectors due to the impact of what is announced. As the government has announced the abolishment of entrepreneurs’ relief, increasing capital gains again only deters people from starting their own business and likely means that the permanent staff at these businesses receive reduced or no bonus.

“As we’re not yet in a position to know how this impacts consumer confidence and spend, particularly in the lead-up to Christmas, marketing budgets may also suffer a reduced increase due to CFOs being cautious. That being said, those in a position to spend more inevitably win more customers and capitalize off smaller competitors not being able to keep up.”

James Kirkham, chief exec and founder of Iconic, says: “Reeves’s commitment to a ‘Modern Industrial Strategy’ isn’t just an abstract political play – it’s a call to action. The National Wealth Fund, now poised to invest in emerging sectors like gigafactories and green hydrogen, offers more than a boost for big tech and industrial giants. It opens the door for small tech innovators and creative entrepreneurs to plug into a government-backed growth ecosystem. With £20bn earmarked for research and development, startups in AI, biotech, and creative fields have a golden opportunity to align with national priorities, amplifying their own impact and scale.”

The advertising industry’s reaction to Reeves' budget is mixed and there is a clear acknowledgment of the broader public good that may come from increased public spending, especially in areas like education and healthcare. As an optimistic sector, there is some hope that these investments eventually filter through to consumer confidence.

However, there is also evident anxiety about the short-term impacts of increased employer national insurance contributions, higher business rates, and changes to capital gains tax, which could stifle growth ambitions and suppress the appetite for investment.

Many agency leaders are left with the question of how to navigate this current landscape – whether by finding operational efficiencies, emphasizing their value proposition to boost revenues, or pivoting towards sectors where consumer confidence remains strong. Ultimately, this budget may set the foundation for future growth, but its success hinges on how businesses across industries adapt to these new financial demands.