Rachel Reeves, the Chancellor of the Exchequer, has dropped her most unambiguous indication yet that Labour may raise employer national insurance contributions in the upcoming budget. The move has sparked accusations that the party could be on the verge of breaking its key manifesto promises.
Speaking at the government’s international investment summit at Guildhall in London, Reeves hinted at impending tax increases, framing them as necessary steps to ensure fiscal stability.
Despite concerns from business leaders, Reeves emphasized that the business community would understand the need for such measures.
Addressing widespread speculation that Labour might impose national insurance on employers’ pension contributions, Reeves refused to rule out the possibility.
Instead, she stressed the urgent need to address the financial gap left by the previous government. “We will stick to the commitments we made in our manifesto,” Reeves insisted. “But you know there is a £22bn black hole over and above anything we knew about going into the election that we need to fill.”
Economic Priorities Meet Business Realities
Labour’s election manifesto had pledged not to raise income tax, VAT, or national insurance, which Reeves acknowledged in her remarks. However, the Chancellor clarified that the government had to find a way to close the gap between government spending and tax receipts. “We are going to need to sort of close that gap between what government is spending and bringing in through tax receipts,” Reeves explained.
During his keynote address at the summit, Keir Starmer reinforced Reeves’s message, highlighting the urgency of addressing the country’s public finances and services. “Our public services need urgent care. Our public finances need the tough love of prudence,” Starmer said, adding that these challenges cannot be ignored.
Reeves’ comments were prompted by the announcement that £63bn of foreign investment would create nearly 38,000 UK jobs in sectors such as renewable energy, data centers, and artificial intelligence.
Despite the impending tax hikes, Reeves insisted these changes would not be anti-business. “Unless you put Britain on a stable economic and financial path, we’re not going to be able to get that investment in,” she explained. “And that will mean some difficult decisions, including on taxation.”
However, she added that businesses understand the need for these steps. “They know that we have got to pay for day-to-day spending through tax receipts,” Reeves said while assuring that the UK would remain competitive globally.
Labour’s Manifesto Commitments Under Fire
Reeves’ remarks have ignited debate over Labour’s adherence to its manifesto commitments. Critics have expressed concern that raising employer national insurance contributions could be seen as a direct violation of Labour’s promise not to increase taxes on working people.
Paul Johnson, the head of the Institute for Fiscal Studies, spoke out against the potential tax hike. Johnson stated that such a move would be a “straightforward breach” of Labour’s manifesto pledge. “I went back and read the manifesto, and it says very clearly [that] we will not raise rates of national insurance,” Johnson emphasized.
Meanwhile, Jeremy Hunt, the Shadow Chancellor, took to social media to voice his criticism. In a post on X, he wrote: “It’s obvious to most people that raising national insurance would breach Labour’s manifesto pledge to … not raise national insurance!”
Beyond the issue of national insurance, Labour has also faced criticism for appearing to scale back its commitment to invest £7.3bn in the National Wealth Fund. The fund, which aims to support green projects, has seen its budget trimmed to £5.8bn, with officials confirming that the remaining £1.5bn had been allocated elsewhere.
Despite these controversies, Reeves confirmed that Labour would keep its promise to keep the corporation tax rate at 25%.
As the budget announcement draws nearer, the tension between Labour’s need to balance the books and its commitment to manifesto promises will probably only grow.
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