Labour MP Rachel Reeves has received a stern warning regarding a potential breach of the party’s manifesto if national insurance rates are increased for employers. Paul Johnson, the director of the Institute for Fiscal Studies (IFS), cautioned that such a move would go directly against Labour’s explicit commitment made in their manifesto.
The current speculation revolves around the possibility of Reeves considering raising employer national insurance contributions while keeping the levy on employees unchanged. As it stands, employees pay 8% of earnings above £12,500, whereas employers pay a flat rate of 13.8%. In Labour’s manifesto, a clear promise was made not to increase taxes on working people, explicitly stating that national insurance rates would not be raised.
Although opposition leader Sir Keir Starmer has refrained from ruling out a potential increase in employer national insurance rates, Business Secretary Jonathan Reynolds recently suggested that the manifesto pledge only applies to employee contributions. This indication strongly suggests that Labour is actively contemplating this change.
Paul Johnson stressed that if Rachel Reeves aims to generate significant funds at the upcoming Budget on October 30, she may need to breach Labour’s pledge in some form. The IFS has previously highlighted the necessity for Reeves to identify £25 billion annually in tax hikes to fulfil Labour’s commitment to end austerity and rebuild public services.
Johnson noted that while raising national insurance or income tax may be less damaging compared to other revenue-raising alternatives, any significant increase in taxes would need to be carefully considered. Additionally, Shadow Work and Pensions Secretary Mel Stride expressed his concerns, labelling it as “absurd” for Labour to hike national insurance on employers and claim it does not breach the manifesto.
As the discussions continue, it remains to be seen how Labour will navigate the challenging task of fulfilling their fiscal promises while maintaining their commitment to not increase taxes on working people. The anticipated Budget announcement is expected to shed light on the party’s financial strategy moving forward.