Reeves hints at rise in employer national insurance, as critics claim it breaches manifesto

 

Reeves hints at rise in employer national insurance, as critics claim it breaches manifesto

 

Chancellor says businesses will understand balancing the books is necessary for fiscal stability

 

Richard Partington and Kiran Stacey

Mon 14 Oct 2024 19.07 BST

https://www.theguardian.com/uk-news/2024/oct/14/rachel-reeves-hints-rise-in-employer-national-insurance-budget

 

Rachel Reeves has dropped her strongest hint yet that she is planning to raise employer national insurance contributions in the budget, prompting accusations Labour is about to break a manifesto promise.

 

The chancellor used the government’s international investment summit at London’s Guildhall on Monday to warn of tax rises to come in this month’s announcement, insisting that business would understand the need for fiscal stability.

 

After days of rumours that Reeves is planning to increase employer national insurance contributions, the chancellor refused to rule out doing so, adding that executives would understand the need for such decisions.

 

“We will stick to the commitments we made in our manifesto,” she said. “But you know there is a £22bn black hole over and above anything we knew about going into the election that we need to fill, and that’s not just a one year, that persists throughout the forecast period.

 

“So we are going to need to sort of close that gap between what government is spending and bringing in through tax receipts. But we are going to be a government that sticks to our manifesto commitments, including that one [on not raising taxes on working people].”

 

Introducing national insurance on employer pension contributions could raise as much as £17bn a year for the exchequer, while putting up regular employer national insurance by 1p would raise about £8.5bn.

 

Reeves’s message was underlined by Keir Starmer, who told the summit in his keynote speech: “Our public services need urgent care, our public finances need the tough love of prudence – challenges we can’t ignore. Because we know, just as every leader here knows, that those early weeks and months are precious, and no matter how many people advise you to ignore it, that you must run towards the fire to put it out, not let it spread further.”

 

Speaking as the government said nearly 38,000 UK jobs would be created after a total of £63bn of international investment was announced in areas such as renewable energy, datacentres and artificial intelligence, Reeves said tax rises on employers would not count as anti-business.

 

“Unless you put Britain on a stable economic and financial path, we’re not going to be able to get that investment in,” she said. “And that will mean some difficult decisions, including on taxation.

 

“But businesses get that. They know that we have got to pay for day-to-day spending through tax receipts, they want to see a path to balance the books, but we’ve got to do it in a way that is also ensuring that we remain competitive in the global economy.”

 

Reeves has said she will have to take painful decisions in the budget because of the £22bn hole that Labour says it inherited from the last government.

 

But critics say that hiking employers’ national insurance contributions would directly violate Labour’s manifesto commitment not to raise income tax, VAT or national insurance.

 

Paul Johnson, the head of the Institute for Fiscal Studies, told Times Radio on Monday that such a move would count as a “straightforward breach” of the manifesto. “I went back and read the manifesto and it says very clearly, we will not raise rates of national insurance,” he said.

 

Jeremy Hunt, the shadow chancellor, posted on X: “It’s obvious to most people that raising national insurance would breach Labour’s manifesto pledge to … not raise national insurance!”

 

 Craig Beaumont, an executive director at the Federation of Small Businesses, said: “You don’t get to a pro-small business budget without the government honouring its cast-iron manifesto commitment to not increase national insurance contributions, including on small employers.

 

“At a stroke this will make every job in all our local communities more expensive to maintain, which will see the current fall in job numbers in UK SMEs [small- and medium-sized enterprises] gather pace. Fewer jobs and lower pay is not the way forward.”

 

Labour ministers, however, say the pledge referred to taxes on working people, and therefore did not cover employer contributions.

 

Labour was also accused of watering down its manifesto commitment to invest £7.3bn in the national wealth fund, which it has set up to invest in green projects, after confirming the fund would only get £5.8bn. Officials said the remaining £1.5bn had been allocated elsewhere.

 

Reeves’s comments on tax formed part of a careful balancing act the chancellor tried to maintain on Monday as she wooed international corporations to invest more in Britain while also being clear about the tax decisions to come.

 

The summit was attended by high-level executives from a number of global companies, including Google, BlackRock and GlaxoSmithKline.

 

Andrea Rossi, the chief executive of M&G, a headline sponsor of the investment summit, said he expected Reeves’s budget would be “pragmatic” and focused on growth. However, he warned large tax rises risked “killing the economy”.

 

“You’re not going to grow the economy if you tax the economy much, much more,” he said.

 

 

It was the attendance of the Dubai-owned DP World that caused the most attention however, after the company originally threatened to pull out after Louise Haigh, the transport secretary, called P&O Ferries, which it owns, a “rogue operator”.

 

DP World confirmed it would spend £1bn on the London Gateway port project in Essex, despite the row, after Starmer publicly rebuked his transport secretary. Haigh also attended the summit, although did not make any public comments.

 

Other investments were focused on green energy, such as a £2bn commitment to new solar farms from Octopus Energy, and on technology, including £10bn from Blackstone for a new datacentre in Northumberland.

 

As the final part of the government’s business charm offensive, Elton John was brought in to serenade guests at a reception at St Paul’s Cathedral also attended by King Charles.