The Prime Minister has declined to rule out increasing employers’ national insurance contributions at the Budget but insisted Labour would keep its promise not to raise taxes on “working people”.
In an interview with the BBC, Sir Keir Starmer warned again that October 30 would bring a “tough” Budget amid speculation that Chancellor Rachel Reeves could announce more tax rises than those included in Labour’s manifesto.
That manifesto included a promise not to raise taxes on “working people”, including income tax, VAT and national insurance.
But the Government has faced questions on whether the commitment not to raise national insurance covered employers’ contributions as well as those by employees.
On Tuesday, Sir Keir declined to rule out raising employers’ contributions, saying Labour had been “very clear in the manifesto that we wouldn’t be increasing tax on working people”.
He added: “It wasn’t just the manifesto, we said it repeatedly in the campaign and we intend to keep the promises that we made in our manifesto.”
Businesses warned that raising their national insurance contributions would operate as a “tax on jobs”.
Kate Nicholls, chief executive of industry body UKHospitality, said high vacancies in the sector showed businesses needed to be incentivised to create more jobs instead.
She said: “An increase would particularly hammer sectors like hospitality, where staffing costs are the biggest business expense.
“Hospitality businesses are much less able to stomach yet another cost increase, when they’re already managing increases in other areas like wages, food, drink and energy. But it is hospitality that is most likely to support people from economic inactivity back into the workforce.”
In a political Cabinet meeting on Tuesday, the Chancellor warned that the UK’s decline could not be fixed “in one year or one Budget” but said it would deliver on priorities to “protect working people, fix the NHS and rebuild Britain”.
She insisted it would be an “opportunity to put the country on a firmer footing” and highlighted a £22 billion black hole in the public finances which the Government says it was left by its Tory predecessor.
Ms Reeves faces a difficult challenge when she announces her first Budget at the end of the month and needs to square the Government’s promises on taxation with a commitment to keep borrowing under control and avoid a return to austerity.
She will also want to find further ways of closing the so-called “black hole” caused by significant overspends in this year’s budget, with much of that pressure likely to persist throughout the Parliament.
Experts have argued that ministers need to find £20 billion to avoid cuts to so-called “unprotected” departments pencilled in by their Conservative predecessors, along with billions more to prevent a sharp fall in investment spending.
Some of that could come from changing the measure the Government uses to calculate debt but Resolution Foundation economist Cara Pacitti warned on Monday that tax rises were “all but inevitable” to prevent cuts to day-to-day spending.
Ministers have so far largely declined to comment on speculation about possible tax rises but Sir Keir said on Monday that suggestions capital gains tax could increase to 39% were “wide of the mark”.
Laura Trott MP, Conservative shadow chief secretary to the Treasury said: “In 2021, the Chancellor said increasing employer national insurance was a tax on ‘workers’. That’s why even in her own words it breaks Labour’s manifesto promise not to increase tax on working people.
“Rachel Reeves herself previously called the move anti-business and we agree, it is a tax on work that will deter investment, employment and growth, and the OBR says it will lower wages.
“Only a day after their first investment summit, the Prime Minister and Chancellor are choosing to sow further uncertainty and chaos for businesses by opening the door to a new jobs tax.”
The Liberal Democrats urged the Chancellor to “think again”, with Treasury spokeswoman Daisy Cooper saying: “The burden of this budget should fall on the likes of big banks, social media giants and oil and gas firms, instead of our local community businesses. The Chancellor should be protecting these smaller businesses, who are the backbone of our economy and the heartbeat of our communities.
“Now is not the time to raise national insurance rates on our high streets, local businesses and dynamic entrepreneurs.
“The Conservative government has left our economy on life support. Now is the time to boost growth by backing small businesses and repairing our crumbling public services.”
