Upcoming Budget: National Insurance Hike to Fund NHS

Labour's Budget: Tax Promises and Working People

As the Labour government prepares for its first Budget, Education Secretary Bridget Phillipson has made it clear that working people won’t see higher taxes on their payslips. However, this promise has raised questions about who exactly qualifies as a “working person.” During an interview on BBC’s Sunday with Laura Kuenssberg, Phillipson was pressed on whether small business owners making around £13,000 a year would fall into this category. She refrained from giving a definitive answer, stating, “You are inviting me to speculate about the nature of the question that you’re asking.”

Labour’s manifesto pledged not to increase national insurance, income tax, or VAT for working people, but reports indicate the government might increase employers' national insurance contributions, potentially raising up to £20 billion. This move has been criticised by the Conservatives as a “jobs tax.” Shadow science secretary Andrew Griffith accused Labour of coming into government on a “false prospectus,” claiming they’ve misled the British people about their tax plans.

Despite these tensions, Phillipson reiterated Labour’s commitment, insisting that “when people look at their payslips, they will not see higher taxes.” She acknowledged the “frustrations” over the lack of clarity regarding who might be affected by tax changes but emphasised the need for tough choices between investment and national decline.

Former Bank of England governor Mervyn King weighed in, warning that raising employers’ national insurance could ultimately impact workers' salaries. He noted, “Taxes are paid by people; they’re not paid by companies or institutions.” This sentiment reflects growing concerns about how these tax decisions will affect everyday citizens, regardless of the government’s definitions.

In light of these challenges, Chancellor Rachel Reeves is expected to outline significant spending initiatives, including £1.4 billion for rebuilding schools and investments in childcare and breakfast clubs. However, this ambitious plan is complicated by looming tax increases and the potential for long-term economic strain.

As the Budget approaches, speculation continues about additional levies on asset sales, inheritance tax adjustments, and freezing income tax thresholds, which could drag more individuals into higher tax brackets. The upcoming announcements are crucial, and how Labour navigates these challenges will significantly shape its electoral future.

The Prime Minister has denied any intention to wage a “war on Middle Britain,” but critics remain sceptical, highlighting the potential impact on those who feel they were promised more by this new government. As Labour prepares to unveil its plans, all eyes will be on how it balances taxation and public investment in a challenging economic landscape.

Upcoming Budget: National Insurance Hike to Fund NHS

As the UK prepares for a significant Budget announcement this week, Chancellor Rachel Reeves is poised to raise employers' National Insurance contributions to address pressing public service needs, particularly for the NHS. This move is expected to generate approximately £20 billion, making it the largest revenue-raising measure in Labour's first Budget in nearly 15 years.

Currently, employers pay National Insurance at a rate of 13.8% on earnings exceeding £175 per week. Reports suggest Reeves plans to increase this rate by up to two percentage points while also lowering the threshold at which employers begin paying the tax. A government source emphasised the necessity of this increase: “There is a universal consensus that the NHS needs more money. That means asking businesses to help out. The choice is investment versus decline.”

Prime Minister Sir Keir Starmer, speaking at the Commonwealth Heads of Government Meeting in Samoa, echoed this sentiment, stating that the government would make “tough decisions” to restore the NHS to a sustainable footing. The National Insurance contributions represent the UK's second-largest revenue stream after income tax, underscoring the magnitude of this proposal.

While speculation abounds regarding other potential tax increases, Reeves has been clear that the burden will primarily fall on the private sector, with public sector employers, including the NHS, reimbursed to mitigate the impact. Critics from the Conservative Party are likely to frame this increase as “a tax on jobs,” arguing it could hinder employment growth. However, Reeves maintains that this is a necessary investment in vital services.

In conjunction with the National Insurance increase, Reeves is expected to extend the freeze on income tax thresholds, potentially dragging more workers into higher tax brackets as their wages increase. Additionally, there is talk of adjusting taxes on asset sales and possibly overhauling inheritance tax.

Despite these forthcoming changes, Reeves has rejected the idea of raising National Insurance rates for employees, which aligns with Labour's manifesto commitment not to increase taxes on "working people." The definition of “working people” has sparked debate, with Starmer clarifying that it excludes individuals earning from assets like shares and property.

Looking ahead, Reeves is also set to announce £500 million for affordable housing initiatives, aiming to tackle the housing crisis that has left many unable to enter the property market. As the Budget approaches, it remains to be seen how these measures will be received and their long-term implications for the UK economy.

This Budget marks a critical moment for the Labour government as it seeks to balance fiscal responsibility with the pressing need for public service funding. As Reeves prepares to unveil her plans, the conversation around taxation and public investment will undoubtedly continue to evolve.