Increasing firms’ National Insurance contributions would be handbrake on investment, warn City leaders
A Labour raid on employers’ National Insurance (NI) contributions would threaten jobs and damage investment in the UK, business leaders have warned.
They intervened after a senior Cabinet minister gave the strongest hint yet that the Government could increase employers’ NI contributions in the Budget on Oct 30.
Jonathan Reynolds, the Business Secretary, insisted Labour’s manifesto commitment not to raise NI did not include employers’ contributions but referred only to “taxes on working people”.
But senior Conservatives including Robert Jenrick, the Tory leadership contender, branded the move a “tax on jobs” and said it was a clear breach of Labour’s pre-election promises.
City figures such as the chief executive of Lloyds Bank, Britain’s biggest lender, said NI would be one of the “worst taxes” to increase because it would be a “handbrake” on investment and hammer businesses by making it more expensive to hire staff.
The row came ahead of Sir Keir Starmer’s showcase investment summit at the Guildhall on Monday, where he will make his “pitch for Britain” by pledging to rip up red tape that “needlessly holds back investment”.
Hundreds of international business leaders and investors are expected to attend the conference before an exclusive reception at St Paul’s Cathedral, attended by the King.
Last week, Sir Keir refused to rule out a hike in NI employer contributions when challenged by Rishi Sunak in the Commons.
Levying NI on employer pension contributions at a flat 13.8 per cent rate would raise up to £18 billion a year by the end of the decade, according to recent research by the Resolution Foundation think tank.
Experts calculate that taxing employer pension contributions could cost high-earners £1,800 a year. Employers pay NI of up to 13.8 per cent on employee earnings, but salary paid into a pension is tax-free.
It comes after Rachel Reeves, the Chancellor, softened a planned crackdown on non-doms amid warnings that the move would cause wealthy individuals to leave the country.
Meanwhile, other measures she expected to fill a black hole of £22 billion, such as raising capital gains tax to as high as 39 per cent and closing a private equity tax loophole, are also expected to raise less than predicted – fuelling fears that she will turn to taxes on working people.
Business leaders warned that an NI hike on employers would hinder growth – one of Sir Keir’s top priorities.
Charlie Nunn, the Lloyds Bank chief executive, said: “Anything that helps people continue to invest and take appropriate risk, we think, is really important. Anything that does the opposite would be a handbrake.
“Pensions, and contributions to pensions, are critical. We see about 40 per cent of people in the UK have a pension which won’t give them even a basic living allowance when they retire. So we need to increase enrolment and investments in pensions.”
Kate Nicholls, the chief executive of UK Hospitality, said: “This is a tax on jobs. An increase in NICs makes it harder to employ people and to take a risk on recruitment and expansion, because the costs of it will be so much higher.”
Lord Spencer, the billionaire investor and a Tory donor, accused Labour of breaking its promise not to tax working people.
“It’s a breach of the principle of their commitment not to change income tax rates,” he said. “They said they weren’t going to change National Insurance and they’re now redefining it and saying they weren’t referring to corporate National Insurance.”
Lord Clarke, the former chancellor, said both Labour and the Tories had been “irresponsible” at the election to promise “not to put up any of the normal sources of tax revenue”.
“By ruling out raising any of the basic taxes that are normal and fair ways of raising tax, they are now having to look at some of these unattractive alternatives,” he told The Telegraph. “Raising National Insurance will have an adverse effect on employers creating jobs and affect the financial position of companies.”
Mr Jenrick, a former exchequer secretary to the Treasury, said: “This is the strongest indication yet that Labour will break another manifesto pledge. All tax is ultimately paid by working people.
“The prospect of this tax on jobs is already scaring away investors, and leaves Starmer’s investment summit in disarray. Labour’s high tax and spend agenda will drive our economy into the ground.”
Mel Stride, the shadow work and pensions secretary, said it would be an “absurdity” for Labour to argue that raising employers’ NI contributions was not a breach of its manifesto commitments.
Labour’s manifesto said: “We will ensure taxes on working people are kept as low as possible. Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of income tax or VAT.”
It came as figures showed that hiring has fallen to the lowest level since the pandemic as bosses fear the prospect of tax raids by Ms Reeves.
The share of companies trying to recruit new workers has dropped to 56 per cent, according to the British Chambers of Commerce – the smallest share since the second quarter of 2021, when the country was still in the grip of Covid restrictions.
Separately, more than 500 entrepreneurs signed a letter warning Ms Reeves against any increases in capital gains tax, which is levied on the sale of shares by business owners.
The letter, coordinated by the Entrepreneurs’ Network, warned that a CGT raid would “jeopardise the success of our country’s start-up ecosystem by enormously weakening the incentive individuals have to build businesses”.
On Sunday, the Business Secretary confirmed publicly that the Dubai-based owner of P&O ferries would go ahead with its £1 billion port investment, after threatening to reconsider when Louise Haigh, the Transport Secretary, called it a “rogue operator”.
The row threatened to Monday’s investment summit, with Downing Street intervening at the weekend to secure the firm’s attendance as Sir Keir distanced himself from her comments.
