The single biggest tax raising measure outlined in Wednesday’s Budget was an increase in employers’ National Insurance contributions (NICs), which the Office for Budget Responsibility (OBR) says is expected to raise £25.7 billion a year by 2029/30 (before accounting for the indirect effects of the policy).
Changes to employer NICs include a 1.2 percentage point rate increase, a reduction in the threshold at which employers begin paying NICs from £9,100 to £5,000 a year and an increase in the Employment Allowance (relief smaller employers can claim on their NICs liabilities).
Setting out the Budget, Chancellor of the Exchequer Rachel Reeves claimed that Labour had kept “every single commitment that we made on tax in our manifesto”. But in his response outgoing Leader of the Opposition Rishi Sunak claimed the Budget “raises tax on working people by increasing National Insurance and breaking Labour’s promise”.
Exactly what Labour promised on tax prior to the election has been disputed in recent days, with politicians offering different interpretations of what the party’s manifesto pledge on National Insurance actually meant.
As we wrote earlier this week, the manifesto said: “Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT.”
In recent weeks Labour has argued its commitment to “not increase National Insurance” applied to “working people” but not employers, with ministers saying it meant that people wouldn’t see higher taxes on their payslips. It’s also been noted that during the election campaign the Conservatives themselves warned that Labour had only ruled out rises to employee, not employer, NICs.
But Labour’s manifesto didn’t explicitly specify that the commitment applied only to employee National Insurance, leading Institute for Fiscal Studies (IFS) director Paul Johnson to say earlier this month that increasing employer NICs would seem to be a “straightforward breach of a manifesto commitment”.
It’s also worth noting that in some interviews ahead of the election Ms Reeves did not appear to make it clear that Labour’s commitment not to increase National Insurance only applied to employee NICs.
While an increase in employer NICs doesn’t directly increase the amount workers pay in tax, the OBR forecasts that approximately three-quarters of the employer NICs will be passed on to employees through lower real wages, thereby reducing the overall amount raised by the measure after accounting for its indirect effects.
The OBR also says that the passing-on of the employer NICs increase is partly responsible for what it forecasts will be a “sharp” slowdown in real household disposable income growth in 2026/27 and 2027/28.
This fact check was originally published as part of our Autumn 2024 Budget round-up. You can read the original article here.