Labour’s National Insurance Dilemma: Employer Hike Proposal Sparks Job Concerns and Manifesto Discrepancy

Increasing employer national insurance contradicts Labour's platform and might result in job losses.

Sir Keir Starmer has not dismissed the possibility of hiking employer national insurance in the forthcoming autumn budget.

Political correspondent @fayebrownSky

Tuesday, October 15, 2024, 7:

Increasing employer contributions to national insurance seems to contradict Labour's platform and might result in long-term employment reductions, according to the leader of a prominent think tank.

Paul Johnson, the head of the Institute for Fiscal Studies (IFS), mentioned on Sky News' Politics Hub With Sophy Ridge that the burden of employer National Insurance contributions effectively "comes out of employee wages" and that raising it could lead to "smaller salary increases" and "potentially fewer positions."

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Sir Keir Starmer has not dismissed the possibility of increasing national insurance for employers in the forthcoming autumn budget.

There are claims that this action would violate a commitment from the 2024 Labour manifesto, which promised that there would be no hikes in national insurance, income tax, or VAT.

On Tuesday, the prime minister stated that it was evident that there would be no "hike in taxes for working individuals," which does not rule out the possibility of a rise in the employer portion of National Insurance.

Mr. Johnson stated, "A direct rise in the employer national insurance rate would appear to contradict the explicit promise in the Labour party's manifesto, which asserts, 'We will not increase national insurance contributions'."

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"The text does not mention the national insurance contributions of employees."

Firms are required to contribute 13.8% in National Insurance for any employee earnings over £175 weekly, however, employer contributions to pensions are not subject to this charge. Specialists believe this exemption might be at risk.

Employees and self-employed individuals contribute to National Insurance directly from their earnings, which is deducted from their paychecks.

Officials have affirmed that this component will remain unchanged when Chancellor Rachel Reeves presents her budget later this month, during which she plans to introduce strategies to address a £22 billion deficit in the country's budget.

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Mr. Johnson indicated that ultimately, the burden of any rise in employer National Insurance contributions would be borne by employees.

"He explained that economic theory predicts this outcome and real-world data confirms it: increasing it over time tends to lead to smaller wage increases," he said.

He further noted, "Ultimately, it's individuals who bear the burden of all taxes."

"The costs must be covered by either the company's shareholders, its customers, or its employees."

"Much of the research and data indicate that the majority of the impact from the rise will likely affect workers earning lower wages, and, potentially, there could be fewer jobs available in the long run than there would have been otherwise. Essentially, over time, this is quite comparable to a rise in employee national insurance contributions."

'Employment levy detrimental to economic health'

Craig Beaumont, the executive director of the Federation of Small Business, echoed Mr. Johnson's opinion.

He referred to employer National Insurance as a "jobs tax" and argued that it should be lowered instead of increased.

"He mentioned to Sky News that raising it could result in fewer employment opportunities."

"Small businesses examining this might wonder, 'What should I do next?'

"Should I reduce expenses? Should I raise my prices? Should I cut jobs or hours? Should I consider adjusting pension contributions? Every choice available seems detrimental to the economy."

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