Chancellor Rachel Reeves is expected to announce a rise in employer National Insurance contributions in the upcoming Budget, aiming to secure an additional £20 billion for essential public services like the NHS.
Reeves is also likely to lower the threshold for employer contributions, making this adjustment the largest single revenue-raising measure of the Budget.
Currently, employers pay 13.8% National Insurance on earnings over £175 per week, but this rate could increase to fund urgent healthcare needs.
A government insider stated, “There is broad consensus that the NHS requires more funds, and businesses are being called upon to contribute.”
Prime Minister Sir Keir Starmer, attending a Commonwealth meeting in Samoa, emphasized the government’s commitment to “tough decisions” to help revive the NHS.
National Insurance is the UK’s second-highest revenue stream after income tax, with payments made by workers, the self-employed, and employers. Labour’s Budget, its first in 15 years, addresses what Reeves describes as a £22 billion “gap” in public finances.
Alongside National Insurance hikes for employers, the chancellor may extend the freeze on income tax thresholds, meaning more people could enter higher tax brackets as wages rise against unchanged thresholds. The government is also exploring tax increases on asset sales and inheritance.
Reeves hinted last week that businesses would shoulder increased National Insurance contributions, aligning with Labour’s election promise to spare “working people” from higher contributions.
Labour sources suggest that this rise has been earmarked primarily for the NHS, with changes to be implemented quickly through digital payroll systems.
A two-percentage-point increase, raising employer contributions to 15.8%, could generate approximately £18 billion per year, with even more anticipated if the contribution threshold is lowered.
However, the move is likely to face criticism as a “tax on jobs” that could strain hiring and wage growth. Some business groups argue that higher employer taxes could stifle hiring, impacting overall economic growth.
Addressing the International Monetary Fund in Washington, Reeves underscored the importance of balancing day-to-day spending with sustainable tax receipts, stressing that public services must be funded responsibly.
She assured that Labour’s approach would not mark a return to austerity, though businesses are concerned the tax increases may hinder job creation.
As the Budget nears, questions arise about Labour’s commitment not to tax “working people.” Although the hike targets employers, critics argue it could indirectly affect employees through restricted wage increases and fewer job opportunities.
The Conservative Party has accused Labour of shifting its definition of “working people” in an attempt to justify the policy.
