The Chancellor will increase the amount UK employers pay into national insurance, raising £20bn for public services including the NHS.
Chancellor Rachel Reeves is also expected to use Wednesday’s budget to lower the threshold for when employers can start paying tax, but is unlikely to introduce a tax on employer pension contributions. .
Employers currently pay 13.8% National Insurance on workers’ earnings above £175 a week.
The measure is believed to be the single largest revenue increase in next week’s budget, although other tax increases are also expected.
National Insurance contributions are the UK’s second largest source of income after income tax. Workers and the self-employed pay based on their income and profits, and employers pay on top of the wages they pay.
Speculation is mounting about tax increases to be announced by Labor in its first Budget in nearly 15 years, with the Chancellor claiming there is a £22bn “hole” in the public finances.
Beyond national insurance for employers, the freeze on the income tax threshold could be extended, meaning that more people will be able to pay tax or be exposed to higher rates as wages rise and exceed the unchanged threshold. You will be “dragged in.”
The government is considering increasing taxes on the sale of assets such as stocks and real estate and changing inheritance taxes.
Mr Reeves last week said Labor’s election manifesto would not increase contributions for “working people”, which relate to the employee component rather than the amount paid by employers, leaving businesses facing increased National Insurance contributions. He suggested that.
The Chancellor has decided on all the major policies to be announced in Wednesday’s Budget, with the National Insurance hike understood to have been earmarked for the NHS.
Tax changes can be quickly implemented within weeks of budgeting through a digitalized payroll system, resulting in rapid revenue generation.
For example, if National Insurance contributions rose by 2 per cent and employers’ tax rate rose to 15.8 per cent, around £18 billion a year would be raised, according to publicly available Treasury data.
But Reeves also expects to change the threshold at which companies start paying the levy, so those numbers will likely be even higher.
The Chancellor may face claims that he is taxing jobs and, at the very least, breaking the spirit of Labour’s manifesto. But sources said she resisted internal pressure to simply increase National Insurance payments for employees, which was a specific party promise.
Speaking at an International Monetary Fund meeting in Washington on Thursday, Reeves told the BBC it was important to “keep track of your daily spending” by checking that it was paid through your tax receipts. .
He said the UK could not “continue” with current public spending given the current state of public services such as prisons and the NHS, adding: “There will be no return to austerity.”
But the move will raise questions about whether now is the right time to make employers pay what is widely considered a tax on jobs.
Businesses argue that raising national insurance contributions for employers will make it harder to hire staff and create jobs, ultimately hitting growth, the government’s main objective.
The Government will also have to defend how such a decision is consistent with its commitment not to increase taxes on ‘working people’.
This increase will be borne by employers, but if wage increases are limited, it could affect workers in the future. Companies may also reduce hiring due to the additional costs.
An increase in National Insurance contributions may also have an impact on other tax revenues, for example if wage increases are reduced. As companies absorb the additional costs, their profits may decline and they may pay less corporate tax.
The Prime Minister has insisted that working people will not be affected by the tax increase, but he has struggled to define exactly who he is trying to protect.
The Conservatives have accused Labor of “reinventing” what is important as a working person as the Budget approaches.
