Rachel Reeves’s policy of increasing national insurance rates for employers to decrease the overall take has exposed a “depressing” failure from the Labour government, according to commentators.
The Chancellor announced a £25 billion annual increase in employers’ national insurance contributions in the October 30 budget, insisting that the action was necessary to “put our public finances on a firm footing”.
She also said stabilising the UK’s finances and increasing investment would create the conditions for growth, alongside measures including the government’s new planning reforms.
But those on the sidelines have criticised her approach, which some suggest flies in the face of historical evidence that increasing taxes doesn’t help to boost overall tax take.
The increase in employer’s NI and the reduction in the rate at which it becomes payable “will very likely shrink our economy,” writes Andrew Craig for the Telegraph, “something that is glaringly obvious to anyone with a basic grasp of company economics and any experience of running a business”.
Mr Craig, the founder of investment company Plain English Finance, added that the tax change would likely achieve “the opposite of growth” and deliver “unemployment, insolvencies and welfare costs”.
“When it was pointed out to Rachel Reeves in Parliament that GP surgeries, dentists, hospices, care homes and charities would be … affected, it almost appeared that she hadn’t realised this would be the case. It’s mind-blowing.
“The ultimate irony is that the people who will suffer most from this incompetence will be the least fortunate people in our society, precisely the people that the Labour Party is supposed to represent,” Mr Craig said.
A survey from the Confederation of British Industry (CBI) of 266 firms found that 62.4% were likely to reduce their number of new hires as a result of the NI increase, while 48.1% said they would reduce their current staffing teams.
CBI chief executive Rain Newton-Smith has said the tax rise and lowered threshold “put a heavy burden on business”, especially alongside rises to the National Living Wage and the Employments Right Bill.
During a speech at the CBI annual conference, Ms Reeves defended the policy, saying: “I’ve had lots of feedback on the Budget, but what I haven’t heard is any credible alternative to what I did to put our public finances on a firm footing.
“I want you to judge this government on our number one mission, which is to bring growth back to the UK economy.”