Keir Starmer refuses to rule out raising employer National Insurance rate

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Sir Keir Starmer has opened the door to a multibillion pound increase in employer national insurance contributions in this month’s Budget, in a move that critics say would add to the tax burden on business.

Labour’s election manifesto appeared to rule out any increase in national insurance, but in the House of Commons on Wednesday Starmer refused to exclude increasing the rate paid by employers, as opposed to employees.

Chancellor Rachel Reeves could raise billions of pounds in her Budget by including employer pension contributions in the NI system, according to pensions experts.

Rishi Sunak, leader of the opposition, asked Starmer on Wednesday whether he would exclude a rise in employer NI contributions, but the prime minister ducked the question.

Starmer said he would not be drawn on specific tax decisions in the Budget. “We made an absolute commitment in relation to not raising tax on working people,” he said.

Labour’s manifesto said: “We will ensure taxes on working people are kept as low as possible. 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.”

Starmer’s spokesman on Wednesday again refused to say whether the apparent pledge to “not increase national insurance” applied to the employer component, adding: “It means what it says.”

Sir Steve Webb, former Liberal Democrat pensions minister, published a report last month for the pensions consultancy LCP, predicting that Reeves would levy NI to employer pension contributions.

Webb told the Financial Times that excluding those contributions from NI currently costs the Treasury £23.8bn a year.

He said: “The chancellor could create a new rate of NI — eg 2 per cent — on employer contributions, and raise a couple of billion pounds by doing so. 

“The big advantage for the chancellor is that in most cases this would have no immediate pay packet effect on voters, so would have lower political saliency. It could also be implemented relatively quickly.”

Jeremy Hunt, shadow chancellor, has warned that if Reeves went down that route, it would be a “straight tax on business”.

Raj Mody, partner and pensions specialist at PwC, said there could be implications for employee salary sacrifice schemes.

“If the NI regime was changed, employers may well want to reconsider whether these arrangements are still sensible.”

Downing Street declined to comment on Budget speculation.

Sunak has accused the Labour leadership of drawing up plans for much higher borrowing if — as expected — it introduces a new fiscal rule in the Budget later this month.

Reeves is looking to change the measurement of debt to allow her to borrow billions of pounds more for capital investment, a move supported by some economists but which has caused jitters in bond markets.

In the House of Commons on Wednesday, Starmer sought to turn his fire back on Sunak, saying that the last Conservative government had left a £22bn fiscal black hole. “Unlike them, we won’t walk past it,” he said.

Additional reporting by Mary McDougall in London