Chancellor says businesses will understand balancing the books is necessary for fiscal stability
Rachel Reeves, the Chancellor, has strongly suggested that the Labour government may raise employer National Insurance Contributions (NICs) in the upcoming budget, sparking concerns that the party may be on the verge of breaking a key manifesto promise. This move comes as Labour faces a £22 billion fiscal gap, which Reeves says was larger than anticipated when they came into power.
Reeves, speaking at an international investment summit in London, emphasized the importance of fiscal responsibility, indicating that tax rises, particularly for businesses, may be necessary to stabilize the economy. While she assured that Labour would adhere to its manifesto commitments—such as not raising taxes on working people—there was no explicit denial of the possibility of increasing employer NICs. This has led to speculation that Labour may impose National Insurance on employers’ pension contributions, which has drawn criticism from some quarters as a potential breach of their election promises.
Critics argue that raising employer NICs would violate Labour’s commitment not to raise National Insurance, income tax, or VAT, as outlined in their manifesto. Paul Johnson, head of the Institute for Fiscal Studies, stated that such a move would be a “straightforward breach” of Labour’s pledge. Jeremy Hunt, the shadow chancellor, echoed this sentiment, calling out Labour for potentially breaking their promise on social media.
Despite this, Reeves defended the potential tax rises, arguing that businesses would understand the need for tough decisions to ensure fiscal stability. She emphasized that balancing the books is essential to maintaining the UK’s competitiveness on the global stage and attracting future investment.
In addition to the potential tax hikes, Labour has been criticized for scaling back its manifesto commitment to invest £7.3 billion in the National Wealth Fund for green projects. The government has since allocated £5.8 billion, with the remaining £1.5 billion directed elsewhere, further raising concerns about Labour’s ability to fully deliver on its pledges.
Amid these challenges, Reeves reiterated Labour’s commitment to keeping the corporation tax rate at 25%, in line with its manifesto promise, as part of its strategy to maintain a balance between fiscal responsibility and encouraging investment.
