To give a bit of background, in April 2025 (announced in the Autumn Budget 2024), HMRC introduced new National Insurance Contribution (NICs) thresholds and rates:

• Employee and Employer NICs rates have increased
• The lower earnings threshold, or the level at which you start paying NICs, has also changed
• Both percentage uplifts and lower thresholds mean the impact is more significant at lower income levels, where a large portion of the construction work force typically sits.

In other words, it’s a double hit because more earnings are now taxable for NICs, and the rate that Employers pay is also higher.

However, like most things in construction, it’s not quite as simple as applying the NICs rate increase directly to projects costs since construction costs comprise of labour, plant and materials, and the split is not uniform across different trades, projects or sectors. However, there are some important things you need to know, particularly if you’re planning a refurbishment project.

The changes to Employer’s National Insurance mainly impacts construction costs through labour, but it also has an impact on material costs (the impact on materials is much more challenging to quantify for reasons I outline later). Site labour is directly affected because employers will now pay higher NICs contributions on their workforce costs, which will be reflected in tender returns for projects.

That means that everything from groundwork to fit-out trades will become slightly more expensive to deliver, because the people on site cost more to employ. And on refurbishment projects, where there is a higher proportion of labour versus material spend compared to new build projects, the impact is higher.

Impact on construction labour

To calculate the estimated impact, Torridon have used actual person hours that have been logged from a series of projects delivered over the past two years.

By applying the National Insurance uplifts to the direct site labour hours, an indicative range of how much costs are likely to rise solely because of the NICs changes has been calculated. This is before factoring in any other market conditions (or indirect consequences of this rise).

As an approximate guide:

• For refurbishment and projects, the increase in construction costs purely due to NICs changes is estimated between 1% and 1.5% on the total construction cost
• For new build projects, the increase in construction costs purely due to NICs changes is estimated between 0.5% and 1% on the total construction cost.

The key assumptions that have been made for the purpose of formulating these uplifts are:

• Based on typical new-build and refurbishment projects with values between £1-20m
• Applies only to site labour
• Based on traditional forms of construction (not modular / off-site)
• Excludes broader market dynamics (like tendering competitiveness, inflation, or currency changes)
• Calculations are based on a blended rate between all trades. A project with particularly specialist or labour intensive installations will likely be above the upper end of this scale.

What about materials?

UK manufacturers, distributers and delivery teams will experience higher employment costs as a result. But because materials are processed through a supply chain where labour is only one element of the total cost (along with energy, shipping, insurance, profit, etc.), the effect will be much smaller and harder to pinpoint exactly. 

There will be some indirect impact on materials too, but it’s much more challenging to calculate precisely. 

This will also take longer to trickle through to the industry as materials may have been manufactured prior to the new thresholds and rates taking effect. Many materials are also manufactured and processed overseas, so this is a much more complex area to calculate as the changes will apply to some, but not all materials.

Based on experience, our estimation is that over time there will be between 0.2% and 0.5% increase as a direct consequence of the NICs changes. However we forecast that this will not have the same immediate effect as the labour component.

Overall impact on project budgets

Using these indicative figures, the table below shows the potential impact on a £10m* new build and refurbishment project:

*All figures, including calculated uplift exclude VAT.

Other considerations

It’s important to remember that this isn’t the only market pressure right now. There is also the increase in the National Living Wage. And it’s worth stressing that there is also the knock on effect from other industries and professions (of this same increase), which will drive up employment costs, and potentially in turn prices, across the board.

Market conditions (including international), contractor capacity, tendering competitiveness, inflationary pressures, and supply chain risks are also influencing construction costs right now, and as always should be factored in to any construction budgets. 

In some cases, a more competitive market could offset some of the labour uplift. In others, it might compound the pressure further. Its worth noting that overall, in the next 12 months the BCIS are forecasting year-on-year tender price inflation at just below 3%. 

Construction clients should be particularly cautious with tight contingency levels at present because labour pressures can feed through in unexpected ways especially whilst the supply chain get to grips with the changes.

National Insurance might not grab the headlines like Tariffs do but it matters. Especially on refurbishment projects where labour is king.

All figures are indicative only. Torridon are already helping clients adjust their budgets and risk allowances in response to these changes. If you’d like a clearer view of how these changes could impact your project or business specifically, speak to both your QS and Accountant.

• David Shaw is a cost consultancy expert specialising in refurbishment projects and office fit-outs. As a director at Torridon, David helps clients across the UK deliver projects with greater clarity, certainty, and confidence.