Labour would break a key election manifesto pledge if it goes ahead with a major tax hike in the Budget, according to a leading think-tank.
Business secretary Jonathan Reynolds appeared to confirm speculation that Rachel Reeves will increase the employers’ part of National Insurance on October 30.
In the run-up to the general election, Labour pledged not to increase National Insurance, income tax or VAT.
But Reynolds told Sky: “That pledge, it was taxes on working people, so it was specifically in the manifesto, a reference to employees and to income tax.”
However Paul Johnson of the Institute for Fiscal Studies (IFS) said putting up NI in any way would be a manifesto breach.
He told Times Radio: “It seems to me that would be a straightforward breach of a manifesto commitment.
“I went back and read the manifesto and it says very clearly we will not raise rates of national insurance.
“It doesn’t specify employee national insurance.”
The IFS already warned last week that taxes would need to be raised by £25 billion to meet Labour’s spending commitments and avoid heading back to austerity.
Johnson also told Times Radio today that parts of Labour’s manifesto would have to be broken to fulfil the government’s promise of growing the economy.
“I think if [Reeves] does want to raise genuinely significant amounts of money, then she almost certainly will have to breach that manifesto one way or another,” Johnson said. “And it’s probably less damaging to raise national insurance or income tax or VAT than it would be to try and get similar amounts in other ways.”
Johnson also suggested the real-life impact of such an increase on individual employers would probably be relatively small.
“Would this be dramatically damaging if it was another penny on national insurance? I mean, frankly, probably not,” he said. “They would raise significant amounts of money as well, employer national insurance, one penny gets you something like £16-17 billion a year.
“So it’s a big chunk of money from a relatively small proportionate change in a very big tax,” Johnson said.
His comments come as Labour kicks off its international investment summit this week in a bid to attract more business proposals to the UK.
The IFS chief suggested while such investment is “absolutely vital for the economy”, he cast doubt on just how much of an effect it would have.
“But is this a sort of sudden one-off surge, which is going to make an enormous difference over the next few years relative to the last few years?” Johnson said.
“I think that’s less likely. I think this is the sort of investment that you need just to keep the economy going.”
Asked whether employers’ National Insurance will go up, the prime minister’s spokesman said he would not comment on “speculation”.
But he added: “The government inherited a £22 billion black hole in the public finances, which will require difficult decisions to fix the foundations of the economy so we can rebuild Britain and make every part of the country better off.”