'A clear manifesto breach': Business groups warn government against hiking NI for employers
Business groups argue a hike in NI for employers would be breaking the government's "cast-iron manifesto commitment," as ITV News Political Editor Robert Peston reports
Business groups have warned the government against breaking their manifesto pledge on tax by hiking national insurance for employers.
As Starmer and other cabinet ministers fail to rule out an increase for employers in the Budget, business leaders have told ITV News the move would be a "clear manifesto breach", placing "an additional strain on businesses"."
The Labour manifesto promised not to raise taxes for "working people", ruling out a rise in National Insurance, income tax and VAT.
Rachel Reeves signaled there will be an increase for businesses in an interview with ITV News on Monday, and speaking to the BBC on Tuesday the PM insisted Labour would keep its promise not to raise taxes on "working people".
But the Federation of Small Businesses argue a hike in NI for employers would be breaking the government's "cast-iron manifesto commitment" not to increase national insurance.
Craig Beaumont, Executive Director of the group which represents small and medium-sized businesses, said: "They made a promise to the small business community, they had a small business plan, they had a manifesto that said no increase in National Insurance.
"They didn't specify within that which bits of National Insurance and this will hit working people.
"Fewer jobs and lower pay is not the way forward", he said.
Businesses and many economists argue raising taxes for employers would mean the costs are passed on to employees and customers.
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Potential impacts could include businesses restricting new hires, limiting pay rises, scaling back pension payments, or even putting up prices for customers.
The British Chambers of Commerce also warned that raising employer NICs "will simply hobble growth and lead to businesses having less money to invest in their staff."
Alex Veitch, Director of Policy at the BCC said: “Firms are run by working people, nearly all UK companies are small, with many family-owned, and they are the anchors in our local economies."
Kate Nicholls, the chief executive of trade group UKHospitality, warned an increase could be a “tax on jobs”, adding: “An increase would particularly hammer sectors like hospitality, where staffing costs are the biggest business expense.”
Employers currently pay 13.8% on earnings above £175 a week, or £9,100 a year, under Class 1 NI contributions. It's deducted and set aside for HMRC before wages are paid out.
The bulk of NI revenues come from employer contributions, which made up an estimated 63% of all revenue in 2023 to 2024, according to figures from the Institute for Fiscal Studies (IFS).
The chancellor faces a difficult challenge when she announces her first Budget at the end of the month, as she seeks to square the government’s promises on taxation with a commitment to keep borrowing under control and avoid a return to austerity.
She will also want to find further ways of closing the £22 billion “black hole” caused by significant overspends in this year’s budget, with much of that pressure likely to persist throughout the Parliament.
Experts have argued that ministers need to find £20 billion to avoid cuts to so-called “unprotected” departments pencilled in by their Conservative predecessors, along with billions more to prevent a sharp fall in investment spending.
Laura Trott MP, Conservative shadow chief secretary to the Treasury, said: “In 2021, the Chancellor said increasing employer national insurance was a tax on ‘workers’. That’s why even in her own words it breaks Labour’s manifesto promise not to increase tax on working people."
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