Chancellor Rachel Reeves is considering introducing National Insurance on employer pension contributions to boost revenue for the Exchequer.
Ahead of the upcoming budget, the Treasury is discussing a levy that could raise around £17 billion, according to experts.
After ensuring that “working people” would not increase their National Insurance contributions, government sources suggested that the manifesto promise did not apply to businesses.
A Treasury source told The Guardian the levy was under discussion, adding: “The commitments in the manifesto were clear to protect the incomes of working people.”
The Prime Minister also refused to rule out an increase in social security rates for companies that pay contributions for employees.
Chwila Praca ruled out raising the employee payroll tax and also declined to say whether it would increase it for businesses.
As for other developments related to the fiscal package that will arrive on October 30:
- Ms Reeves could sign off on the 'HS2 light' project which has been underway since Birmingham to Manchester, where it relaxes rules on government lending;
- Sunak also expressed concern that Ms Reeves plans to “modify” debt rules to allow tens of billions more borrowing;
- Campaigners have warned that reducing the 5p fuel tax cut will push pump prices close to post-Covid highs.
The Treasury is said to be discussing a levy that could raise around £17 billion, experts say (pictured: Rachel Reeves)
HMRC forecasts suggest that increasing this amount for companies that pay employees based on their salary by just one percent could raise £8.45 billion this year (file photo)
Keir Starmer has been urged to rule out a massive budget raid on National Insurance
Sir Keir was in trouble when Rishi Sunak repeatedly pressed him during PMQs over speculation the levy could be extended to employers' contributions
HMRC forecasts suggest that increasing this amount for companies that pay employees on a salary-to-pay basis by just one per cent could raise £8.45 billion this year (2024/25).
It would go some way to filling the £22 billion public finances “black hole” that Chancellor Rachel Reeves, who will present her first budget on October 30, claims has been left by the Tories.
Asked by Conservative leader Rishi Sunak during Prime Minister's Questions whether he would raise this amount in the budget for businesses, Sir Keir said: “I'm not going to be fooled by the decisions that will be made… We're here to stabilize the economy and we will do that.”
Joking about the recent giveaway scandal, Sunak shot back: “I don't think even Lord Alli (Labour's peer) buys any of this nonsense.”
Pressing the Prime Minister, he added: “Does his commitment not to increase national insurance contributions apply to both the employee and the employer?”
But Sir Keir dodged the question, saying: “We set out our promises in our manifesto.”
Companies' social security contributions are not deducted from employees' gross remuneration, but constitute an additional remuneration cost. It is also called the “employment tax”.
Labor has promised not to raise taxes for “working people”, including VAT, income tax and national insurance.
However, it did not specify whether the obligation not to increase social security contributions applies to companies.
For the first time since 1961, UK debt has reached the same size as the overall economy, according to official figures
GDP grew by 0.5 per cent in three months, slightly less than the ONS's initial estimate of 0.6 per cent
Sir Steve Webb, a former pensions minister and partner at pensions consultancy Lane Clark & Peacock, believes it will almost certainly be among the income-boosting options considered by Ms Reeves.
He said: “Excluding wages through employer pension contributions from National Insurance currently costs the government over £20 billion a year.
“So even a small employer contribution rate can add up to a tidy sum.”
Former Tory chancellor Jeremy Hunt said: 'The Prime Minister today left the door open for Labor to break its promises to the British people by raising taxes and increasing debt, leaving future generations to bear the costs and risk higher interest rates.'
Economists from the Growth Commission think tank warned that increasing employers' national insurance contributions by just two percent would result in GDP growth of 1.3 percent over five years.
Craig Beaumont, executive director of the Federation of Small Businesses (FSB), added that small businesses “would be rightly outraged” by any increase and that it would be “the exact opposite of what we all want and need to see if we are to revive economic growth.”
John O'Connell, chief executive of the TaxPayers' Alliance, said: “Increasing this tax would lead to companies employing less and paying less, hurting the very working people Starmer claims to be on the side of.”
Julian Jessop, an economics expert at the Institute of Economic Affairs, said: “Businesses will inevitably pass on tax increases to lower wages and higher prices, or avoid costs by employing fewer workers in the first place.”
Alex Veitch, director of policy at the British Chambers of Commerce, said: “Business taxation must strike the right balance of raising revenues from public services without harming the investment and growth agenda.”
Anna Leach, chief economist at the Institute of Directors, said: 'It would be useful to increase employers' national insurance contributions to increase employment costs at a time when significant changes to work regulation (through the Work Rights Act) are expected.
