The amount employers pay in national insurance is set to rise in next week’s budget to raise money for public services, Sky News understands.
Reports have suggested it could be increased by up to two percentage points and will – in part – be used to help fund the NHS.
A government source told Sky News: “There is a universal consensus that the NHS needs more money.
“That means asking businesses to help out.
“The choice is investment versus decline. She [Rachel Reeves] is choosing not to ask working people to pay the price for their [Conservatives’] failures.”
According to The Times newspaper, Chancellor Rachel Reeves is also expected to make a significant cut to the earnings thresholds at which employers start making national insurance contributions.
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The combined measures are expected to raise about £20bn and will represent the biggest tax rise in the budget.
The burden will reportedly fall entirely on the private sector, with public sector employers such as government departments and the NHS being reimbursed by the Treasury to avoid cuts.
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On Friday, much of the budget chat focused on Labour’s definition of a “working person”.
The party’s manifesto said it would not increase taxes on working people, including VAT, national insurance, and income tax.
This has prompted repeated questions about who the government considers to fall under that umbrella and therefore would not impose tax rises on.
During a broadcast interview at a Commonwealth summit in Samoa, Sir Keir Starmer told Sky News he does not consider people who have an income from assets such as shares of property to be working people.
“They wouldn’t come within my definition,” he said.
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Reacting to questions from journalists, Ms Reeves said the prime minister is a “working person”.
Speaking to LBC, she said: “The prime minister gets his income from going out to work and working for our country.
“He’s a working person. He goes out to work.”
Treasury minister James Murray told Sky News that “a working person is someone who goes out to work and who gets their income from work”.
Pushed further on whether a working person could also get income from shares or property, Mr Murray added: “We’re talking about where people get their money from, and so working people get their money from going out to work.
“And it’s that money that we’re talking about in terms of those commitments we made around income tax, around national insurance.
“That’s what’s important to focus on, where people are getting their money from, getting their money from going out to work.”
The business secretary will next week hold talks with dozens of private sector bosses as the government contends with a significant corporate backlash to Labour’s first fiscal event in nearly 15 years.
Sky News has learnt that executives have been invited to join a conference call on Monday with Jonathan Reynolds, in what will represent his first meaningful engagement with employers since Wednesday’s budget statement.
Rachel Reeves, the chancellor, unsettled financial markets with plans for billions of pounds in extra borrowing, and unnerved business leaders by saying she would raise an additional £25bn annually by hiking their national insurance contributions.
An increase in employer NICs had been trailed by officials in advance of the budget, but the lowering of the threshold to just £5,000 has triggered forecasts of a wave of redundancies and even insolvencies across labour-intensive industries.
Sectors such as retail and hospitality, which employ substantial numbers of part-time workers, have been particularly vocal in their condemnation of the move.
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On Friday, the Financial Times published comments made by the chief executive of Barclays in which he defended Ms Reeves.
“I think they’ve done an admirable job of balancing spending, borrowing and taxation in order to drive the fundamental objective of growth,” CS Venkatakrishnan said.
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His was a rare voice among prominent business figures in backing the chancellor, however, with many questioning whether the government had a meaningful plan to grow the economy.
Mr Reynolds held a similar call with business leaders within days of general election victory, and over 100 bosses are understood to have been invited to Monday’s discussion.
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A spokesman for the Department for Business and Trade declined to comment ahead of Monday’s call.
The cost of government borrowing has jumped, while UK stocks and the pound are up, as markets digest the news of billions in borrowing and tax rises announced in the budget.
While there was no panic, there had been concern about the scale of borrowing and changes to Chancellor Rachel Reeves’s fiscal rules.
At the market open on Friday, the interest rate on government borrowing stood at 4.476% on its 10-year bonds – the benchmark for state borrowing costs.
It’s down from the high of yesterday afternoon – 4.525% – but a solid upward tick.
The pound also rose to buy $1.29 or €1.1873 after yesterday experiencing the biggest two-day fall in trade-weighted sterling in 18 months.
On the stock market front, the benchmark index, the Financial Times Stock Exchange (FTSE) 100 list of most valuable companies was up 0.36%.
The larger and more UK-focused FTSE 250 also went up by 0.1%.
While there was a definite reaction to the budget, uniquely impacting UK borrowing costs, the response is far smaller than after the UK mini-budget.
Many forces are affecting markets with the upcoming US election on a knife edge and interest rate decisions in both the UK and the US coming on Thursday.
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What you need to know is this. The budget has not gone down well in financial markets. Indeed, it’s gone down about as badly as any budget in recent years, save for Liz Truss’s mini-budget.
The pound is weaker. Government bond yields (essentially, the interest rate the exchequer pays on its debt) have gone up.
That’s precisely the opposite market reaction to the one chancellors like to see after they commend their fiscal statements to the house.
In hindsight, perhaps we shouldn’t be surprised.
After all, the new government just committed itself to considerably more borrowing than its predecessors – about £140bn more borrowing in the coming years. And that money has to be borrowed from someone – namely, financial markets.
But those financial markets are now reassessing how keen they are to lend to the UK.
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The upshot is that the pound has fallen quite sharply (the biggest two-day fall in trade-weighted sterling in 18 months) and gilt yields – the interest rate paid by the government – have risen quite sharply.
This was all beginning to crystallise shortly after the budget speech, with yields beginning to rise and the pound beginning to weaken, the moment investors and economists got their hands on the budget documentation.
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0:33
Chancellor challenged over gilt yield spike
But the falls in the pound and the rises in the bond yields accelerated today.
This is not, to be absolutely clear, the kind of response any chancellor wants to see after a budget – let alone their first budget in office.
Indeed, I can’t remember another budget which saw as hostile a market response as this one in many years – save for one.
That exception is, of course, the Liz Truss/Kwasi Kwarteng mini-budget of 2022. And here is where you’ll find the silver lining for Keir Starmer and Rachel Reeves.
The rises in gilt yields and falls in sterling in recent hours and days are still far shy of what took place in the run up and aftermath of the mini-budget. This does not yet feel like a crisis moment for UK markets.
But nor is it anything like good news for the government. In fact, it’s pretty awful. Because higher borrowing rates for UK debt mean it (well, us) will end up paying considerably more to service our debt in the coming years.
And that debt is about to balloon dramatically because of the plans laid down by the chancellor this week.
And this is where things get particularly sticky for Ms Reeves.
In that budget documentation, the Office for Budget Responsibility said the chancellor could afford to see those gilt yields rise by about 1.3 percentage points, but then when they exceeded this level, the so-called “headroom” she had against her fiscal rules would evaporate.
In other words, she’d break those rules – which, recall, are considerably less strict than the ones she inherited from Jeremy Hunt.
Which raises the question: where are those gilt yields right now? How close are they to the danger zone where the chancellor ends up breaking her rules?
Short answer: worryingly close. Because, right now, the yield on five-year government debt (which is the maturity the OBR focuses on most) is more than halfway towards that danger zone – only 56 basis points away from hitting the point where debt interest costs eat up any leeway the chancellor has to avoid breaking her rules.
Now, we are not in crisis territory yet. Nor can every move in currencies and bonds be attributed to this budget.
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Markets are volatile right now. There’s lots going on: a US election next week and a Bank of England decision on interest rates next week.
The chancellor could get lucky. Gilt yields could settle in the coming days. But, right now, the UK, with its high level of public and private debt, with its new government which has just pledged to borrow many billions more in the coming years, is being closely scrutinised by the “bond vigilantes”.