Rachel Reeves is set to introduce the biggest tax hike of the Labour budget targeting UK businesses.
The move is expected to generate £20 billion for the NHS. As part of the proposal, Reeves will increase employers’ national insurance contributions by up to 2%, according to The Times.
Currently set at 13.8%, this change will place additional financial pressure on private sector businesses, who are already concerned about the potential impact on wages and hiring.
On top of that, the Chancellor is expected to make a “significant” cut to the earnings thresholds at which employers start making national insurance contributions.
A Government source said: “The NHS needs more money.” They added, “She [Reeves] is choosing not to ask working people to pay the price for their [Conservatives’] failures.”
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However, Reeves is facing criticism from business leaders, who argue the move could harm growth and slow down hiring.
Andy Scott from the CBI expressed concerns over the policy’s impact, saying: “Firms have told us that increasing employers’ levies will impact their growth plans with potential implications on pay, hiring, and investment.”
Similarly, Tina McKenzie of the Federation of Small Businesses added: “Small employers need to be paying less tax, not more, on jobs.”
Another measure likely to be included in the budget is a reduction in the earnings threshold for employer national insurance contributions, currently set at £9,100.
These combined changes are anticipated to place increased financial demands on businesses, particularly small to medium-sized firms, who may struggle to absorb the extra costs.
Labour insiders claim that Reeves will argue the tax increase is necessary due to the economic challenges inherited from the previous government.
The Chancellor has dismissed alternative proposals, such as reversing a previous national insurance cut, as this would have directly impacted employee take-home pay.
Another option – imposing national insurance on employer pension contributions – was rejected amid concerns that it could affect retirement savings.
With borrowing costs for the government also on the rise, and bond yields for UK government bonds edging up, the Treasury is carefully monitoring the impact of this spending on the economy.
Adam Corlett from the Resolution Foundation suggested that the increase in employer NI “may slow the pace of wage growth and further incentivise bogus self-employment,” stressing that other methods could potentially raise similar revenues with less negative impact on businesses.
