Raising employer NI ‘not consistent’ with Labour manifesto and could lead to ‘fewer jobs’
Hiking employer national insurance (NI) “doesn’t look consistent” with Labour’s manifesto and could lead to job losses in the long term, the head of an influential thinktank said.
Paul Johnson, director of the Institute for Fiscal Studies (IFS), told Sky News’ Politics Hub With Sophy Ridge that employer NI ultimately “comes from the pay of the employee” and increasing it could result in “less pay rises” and “possibly fewer jobs”.
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Sir Keir Starmer has refused to rule out raising national insurance for employers in the upcoming autumn budget.
Some have suggested this would break a 2024 manifesto pledge which said Labour will not increase national insurance, income tax or VAT.
The prime minister claimed on Tuesday that it was clear this meant not “increasing tax on working people” – leaving the door open for the employer element of NI to go up.
Paul Johnson of the IFS
But Mr Johnson said: “I think if we got a straightforward increase in the rate of employer national insurance, that certainly doesn’t look consistent with a very clear statement in the Labour manifesto: ‘We will not raise national insurance contributions’.
“It does not specify employee national insurance contributions.”
Companies pay NI at a rate of 13.8% on all employees’ earnings above £175 per week, but pension contributions made by employers are currently exempt from the levy. This is what experts suggest could be targeted.
Separately, employees and the self-employed pay NI on their earnings, which comes off their payslip.
Ministers have insisted this element will not go up when Chancellor Rachel Reeves delivers her budget later this month, in which she will lay out measures to fill a £22bn “black hole” in the nation’s finances.
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However, Mr Johnson suggested that the impact of any increase to employer NI would ultimately fall on the worker.
“The sort of economic theory tells you that’s what’s likely to happen and the empirical evidence is that that’s what does happen, that if you increase that in the longer term, it results in less in the way of pay rises,” he said.
He added: “In the end, all taxes are paid by people.
“They have to be either paid by the shareholders of the firms that are paying it or the customers or the employees.
“Most of the theory and the evidence suggests that most of the increase will be felt by employees in lower wages, probably, but possibly in the longer term, fewer jobs than there otherwise would have been. I mean, this is very, very similar in the long term to an increase in employee national insurance contributions.”
‘Jobs tax bad for the economy’
Mr Johnson’s view was shared by Craig Beaumont, the executive director of the Federation of Small Business.
He called employer NI a “jobs tax” and said if anything it should be reduced rather than raised.
“If you increase it you would see fewer jobs,” he told Sky News.
“The small business looking at that will go well, what do I do now?
“Do I cut costs? Do I increase my prices? Do I reduce jobs? Reduce hours? Do I look at the pension contributions? Every single option from that is a bad one for the economy.”
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No 10 backs Chancellor Rachel Reeves and says she ‘is going nowhere’ after tearful appearance in Commons
Rachel Reeves has not offered her resignation and is “going nowhere”, Downing Street has said, following her tearful appearance in the House of Commons.
A Number 10 spokesperson said the chancellor had the “full backing” of Sir Keir Starmer, despite Ms Reeves looking visibly upset during Prime Minister’s Questions.
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A spokesperson for the chancellor later clarified that Ms Reeves had been affected by a “personal matter” and would be working out of Downing Street this afternoon.
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UK government bond prices fell by the most since October 2022, and the pound tumbled after Ms Reeves’s Commons appearance, while the yield on the 10-year government bond, or gilt, rose as much as 22 basis points at one point to around 4.68%.
Downing Street’s insistence came despite Sir Keir refusing to guarantee that Ms Reeves would stay as chancellor until the next election following the fallout from the government’s recent welfare U-turn.
Tory leader Kemi Badenoch branded the chancellor the “human shield” for the prime minister’s “incompetence” just hours after he was forced to perform a humiliating U-turn over his controversial welfare bill.
Speaking at Prime Minister’s Questions, Ms Badenoch said: “This man has forgotten that his welfare bill was there to plug a black hole created by the chancellor. Instead they’re creating new ones.”
Turning to the chancellor, the Tory leader added: “[She] is pointing at me – she looks absolutely miserable.
“Labour MPs are going on the record saying that the chancellor is toast, and the reality is that she is a human shield for his incompetence. In January, he said that she would be in post until the next election. Will she really?”
Not fully answering the question, the prime minister replied: “[Ms Badenoch] certainly won’t.
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Welfare vote ‘a blow to the prime minister’
“I have to say, I’m always cheered up when she asks me questions or responds to a statement because she always makes a complete mess of it and shows just how unserious and irrelevant they are.”
Mrs Badenoch interjected: “How awful for the chancellor that he couldn’t confirm that she would stay in place.”
The prime minister’s watered-down Universal Credit and Personal Independent Payment Bill, aimed at saving £5bn, was backed by a majority of 75 in a tense vote on Tuesday evening.
A total of 49 Labour MPs voted against the bill – the largest rebellion in a prime minister’s first year in office since 47 MPs voted against Tony Blair’s Lone Parent benefit in 1997, according to Professor Phil Cowley from Queen Mary University.
After multiple concessions made due to threats of a Labour rebellion, many MPs questioned what they were voting for as the bill had been severely stripped down.
They ended up voting for only one part of the plan: a cut to Universal Credit (UC) sickness benefits for new claimants from £97 a week to £50 from 2026/7.
Ms Badenoch said the climbdown was proof that Sir Keir was “too weak to get anything done”.
Read more:
The PM faced down his party on welfare and lost
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Ms Reeves has also borne a lot of the criticism over the handling of the vote, with some MPs believing that her strict approach to fiscal rules has meant she has approached the ballooning welfare bill from the standpoint of trying to make savings, rather than getting people into work.
Experts have now warned that the welfare U-turn, on top of reversing the cut to winter fuel, means that tax rises in the autumn are more likely – with Ms Reeves now needing to find £5bn to make up for the policy U-turns.
Asked by Ms Badenoch whether he could rule out further tax rises – something Labour promised it would not do on working people in its manifesto – Sir Keir said: “She knows that no prime minister or chancellor ever stands at the despatch box and writes budgets in the future.
“But she talks about growth, for 14 years we had stagnation, and that is what caused the problem.”
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