Rachel Reeves has received a stark warning that hiking national insurance could become Labour’s ‘poll tax’. Business leaders expressed outrage as Treasury officials did not rule out raising employers’ NI contributions. The Chancellor and the Prime Minister maintain that this rise would not break Labour’s pledge to support ‘working people’, as it wouldn’t be a direct tax on employees.
However, the Institute of Directors, representing 20,000 business leaders, disputed this claim, calling it ‘false’. They compared the policy to Thatcher’s poll tax, which led to riots in 1990 and ended her leadership. The institute warned that the costs would fall on workers, affecting jobs and wages.
Anna Leach, the institute’s chief economist, argued against increasing employers’ national insurance, stating it would increase business costs regardless of profitability, akin to a poll tax on companies. She noted that, with low business confidence and declining hiring plans, this move would harm employment and earnings.
National Insurance hit for businesses?
When challenged on the possible increase, Labour stated ‘Labours manifesto pledge only related to not raising National Insurance for workers’!!
Does that not seem rather misleading to you? I think that’s really sneaky..
Putting that… pic.twitter.com/A6SeRXoq7g
— 🅶🆂🆈 🅶🅸🆁🅻 🇬🇬 (@Gsy_Girl) October 14, 2024
Leach criticised the Government’s distinction between taxes on working people and businesses, calling it a ‘false dichotomy’. She stressed that higher national insurance costs would ultimately affect workers.
Speculation about broader tax hikes in the upcoming Budget has cast doubt on Labour’s commitment to prioritising growth. Pimlico Plumbers founder Charlie Mullins criticised the Labour Chancellor for planning to extract more from businesses, accusing Reeves of misunderstanding the business sector and warning of future economic consequences.
Former Sainsbury’s boss Justin King pointed out that national insurance is a tax on jobs, which would lead to higher prices for consumers, lower wages, and potentially fewer jobs.
Recently, the chief secretary to the Treasury, Darren Jones, mirrored the Chancellor and Prime Minister’s stance by refusing to rule out an NI hike, stating that all tax changes would be announced in the Budget. He reiterated Labour’s commitment not to raise taxes on working people, including income tax, national insurance, or VAT.
In 2021, the Conservative government raised employer NICs but reversed the policy following backlash. Reeves criticised the move at the time, saying it would harm workers’ pay.
Currently, companies pay a 13.8 per cent NI rate, separate from the employee rate. Accountants RSM estimate that increasing the employer rate to 14.8 per cent could generate an annual £8.5 billion for the Treasury. This option may appeal to Reeves as she seeks to address a £22 billion shortfall in public finances. Whitehall sources suggest tax rises and spending cuts in the Budget could total £50 billion.
Labour has committed to not increasing VAT, corporation tax, and taxes on ‘working people’, defining the latter as income tax and employee national insurance but excluding employer contributions.
Kevin Hollinrake, the Conservatives’ business spokesman, stated that the Institute for Directors confirmed that the proposed jobs tax would harm businesses and their employees. He warned that Labour’s implementation of this tax would breach their manifesto.
Tina McKenzie from the Federation of Small Businesses added that increasing employer NI contributions would threaten job creation and wage growth, impacting both businesses and employees. She cautioned that small businesses would face significant challenges if employment costs continued to rise.
What Other Media Are Saying
- The Guardian reveals a secret Thatcher-era memo advising against merging national insurance and income tax, potentially undermining Rishi Sunak’s plan to scrap NICs, highlighting pensioner concerns and £40 billion cost implications.(read more)
Frequently Asked Questions
Here are some common questions asked about this news
What is the controversy about Labour’s proposed national insurance hike?
Labour’s proposed hike in employers’ NI contributions has been compared to Thatcher’s poll tax, with concerns it will harm jobs and wages.
How could increasing employer national insurance affect businesses?
Increasing employer national insurance could raise business costs, reduce job creation, lower wages, and increase prices for consumers.
What is Labour’s stance on raising taxes for working people?
Labour has committed to not raising income tax, employee national insurance, or VAT for working people.
Why do business leaders oppose the national insurance hike?
Business leaders argue it will increase costs, harm employment and earnings, and ultimately affect workers despite not being a direct tax on them.
What financial impact could the proposed employer NI hike have?
Raising the employer NI rate to 14.8% could generate an additional £8.5 billion annually for the Treasury.
