Reeves told to scrap ‘jobs tax’ after headline figures questioned
A fresh row has erupted just weeks before Rachel Reeves‘ national insurance tax hike comes into effect after the Treasury’s headline figures were scrutinized.
When announcing her 1.2 per cent hike to employers’ national insurance contributions (NIC) at the Autumn Budget, Reeves said it would raise “£25bn per year by the end of the forecast period.”
The Office for Budget Responsibility (OBR) later interrogated these figures and calculated just £23.8bn would be raised in 2025, with £5.5bn in indirect costs.
In 2026, costs are expected to jump to £9.1bn, dragging NIC revenue down to £14.6bn.
Shadow Chancellor Mel Stride slammed the “jobs tax” as a “ticking timebomb that will lead to fewer jobs, lower wages and higher prices.”
Stride told CityAM: “Given the Chancellor’s reckless tax hike won’t even raise the £25bn she said it would, Rachel Reeves must urgently think again.
“Labour promised the fastest growing economy in the G7 but the Chancellor’s Budget is killing growth stone dead.”
He added that the government was forcing itself into “an emergency budget because of its own mismanagement.”
Senior economist at the Institute for Fiscal Studies Stuart Adam told CityAM: “For most purposes, the right number to use is around £16bn – that is not to say the £25bn number is wrong, you just have to be careful what it means.”
Adam said the OBR’s figures reflect the fact that “if employers are having to pay it has to come from somewhere” leading to decreased profits or wages.
“If companies are going to have lower profits that means lower corporation tax, if lower wages then lower income tax,” he added.
The OBR’s breakdown also highlights the near £5bn in compensation the Treasury is set to pay out for the impact of the tax hike across the public sector.
Adam said: “borrowing more from the private sector than needing to if they weren’t doing compensation” offers one source of capital for provisions, though stressed “there was no right answer for where it is coming from.”
A spokesperson for the Treasury said: “We delivered a once-in-a-Parliament budget to wipe the slate clean, now we are focused on going further and faster to kickstart economic growth so working people have more money in their pockets. As the Chancellor has previously said, we are not immune to the effects of this difficult but fiscally necessary decision.”