Employers’ National Insurance hike to raise £20bn

In a recent interview, Rachel Reeves, the Chancellor of the Exchequer, discussed her plans to increase National Insurance contributions for employers in the UK, aiming to raise £20 billion for essential public services, including the NHS.

When asked about the specifics, Reeves indicated that she would likely lower the threshold at which employers start paying this tax, although it seems she will not extend the levy to contributions made by employers toward pension plans. Currently, employers are required to contribute 13.8% in National Insurance on workers’ earnings exceeding £175 a week.

“This adjustment is anticipated to be the most significant revenue-generating measure in next week’s budget,” Reeves noted, while also hinting at potential additional tax increases.

She explained that National Insurance contributions represent the UK’s second-largest revenue stream, following income tax. These contributions are paid by both employees and the self-employed based on their earnings and profits, while employers pay on the wages they distribute.

With this being Labour’s first budget in nearly 15 years, speculation around tax increases is mounting, particularly since Reeves has pointed out a £22 billion shortfall in public finances. Besides the proposed rise in National Insurance for employers, there is talk of freezing income tax thresholds, which could lead to more individuals being pulled into higher tax brackets as their wages increase.

The government is also considering raising taxes on asset sales, like shares and property, as well as potential changes to inheritance tax. In a previous statement, Reeves suggested that the planned increase in National Insurance contributions wouldn’t affect “working people,” as it pertains only to the employer side of contributions.

As the budget announcement approaches, it appears the Chancellor has already settled on the major initiatives to be revealed, with the National Insurance increase earmarked specifically for NHS funding. Due to the efficiency of digital payroll systems, any tax adjustments can be implemented quickly, allowing for rapid revenue generation.

Reeves calculated that a two percentage point hike in National Insurance, raising the employer rate to 15.8%, could potentially yield around £18 billion annually, although adjustments to the entry threshold could push this number even higher.

Despite possible criticisms of taxing jobs and straying from Labour’s manifesto commitments, sources suggest that Reeves has resisted internal pressures to raise the burden on employees directly, staying true to the party’s campaign promises.