Rachel Reeves poised to raise national insurance for businesses, as Tories claim manifesto breach

15 October 2024, 00:32 | Updated: 15 October 2024, 00:45

Rachel Reeves hinted at a rise in taxes on businesses on Monday, prompting claims from her Conservative opponents that Labour could break a campaign promise.

The Chancellor and Prime Minister Keir Starmer both refused to rule out raising employer national insurance contributions at the Budget.

Ms Reeves pointedly said that employers' contributions were not covered in Labour's manifesto - only that the party had promised not to "increase the key taxes paid by working people.”

The commitment in the manifesto reads: “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.”

When Starmer was asked about employer national insurance contribution rises, he said: "We made very clear commitments in our manifesto and we intend to deliver on those commitments, beyond that I'm afraid you'll have to wait for the Budget for the details for very obvious reasons.

"We're still weeks away from the final assessment in the Budget."

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The Chancellor, who has claimed a £22 billion black hole in the public finances, said that businesses "get" the need for higher taxes.

She added: "I don’t regard it as a dilemma between returning the economy to a path of stability on the one hand and ­attracting investment on the other.

“The precondition for bringing investment into a country is economic and fiscal stability."

Ms Reeves pledged an end to "years of instability" as she addressed business leaders at the summit.

She said: "Today, at this summit, we are sending a message for all to hear.

"We are ending years of instability and uncertainty. We are bringing investment and jobs back to this country. Britain is open for business once again.

"I understand that for every business, stability is the foundation of success. In the next fortnight, I will be finalising my first Budget as Chancellor of the Exchequer and the situation that we have inherited means that we face difficult choices.

"The first step that we must take to grow our economy is to restore fiscal and economic stability, because balancing the books by ensuring that we do not borrow for day-to-day spending is not anti-investment. In fact it is the only way to ensure that both Government and business can invest with confidence."

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She pledged to cap corporation tax at 25% for the rest of the Parliament and set out a roadmap on business taxation to provide "certainty" for investors.

The Chancellor said that the government would "create a tax system that supports wealth creation and increases business investment".

She said: "I know that providing certainty is right at the heart of that. The constant changes that we have seen in corporation tax in recent years have caused instability.

"So at the Budget, this Government will be outlining a corporate tax roadmap. We will cap the rate of corporation tax at 25%, the lowest in the G7, for the duration of this Parliament.

"We will maintain a world-leading capital allowances offer, with full expensing and the £1 million annual investment allowance, and we will maintain the current rates for the research and development reliefs which provide generous support for innovation.

"This is a vital step to deliver certainty and support businesses to grow.

One of the measures already announced to fill the "black hole" was the controversial decision to scrap winter fuel payments for millions of pensioners who are not on pension credit or some other benefits.

Ms Reeves said: "Applications for pension credit are up two or three-fold, which is really encouraging, because that means that we'll have more people who actually keep the winter fuel payment, but also get hundreds, if not thousands, of pounds extra a year.

"And that will help some of the poorest, because I am determined to do everything I can to help the poorest pensioners, and that's why we both kept winter fuel payment for them, but also working really hard with campaign groups and charities and others to boost take up."

In her speech closing the investment summit, Ms Reeves told the world's biggest businesses they can look forward to "a true partnership" with the new government as it works to boost growth.

She went on to announce two new bodies intended to deliver long-term investment in the UK using both public and private finance.

The existing Leeds-based UK Infrastructure Bank will be transformed into the National Wealth Fund (NWF) with £27.8 billion to invest in clean energy and growth industries.

The NWF, which will have a broader mandate than just infrastructure investment, is expected to catalyse significant private investment in key sectors.

Ms Reeves also announced a new British Growth Partnership within the British Business Bank (BBB).

The partnership is expected to help bring institutional investors such as pension funds together with the BBB to make long-term, fully commercial investments by the end of 2025.

Encouraging British pension funds to invest more in the UK was a key goal of the previous government, and one the new Cabinet is also pursuing.

Laura Trott, shadow Treasury minister, said: "The Chancellor has chosen Labour's first investment summit to sow further uncertainty and chaos for businesses who are now braced for Labour's Jobs Tax.

"Regardless of what they say, it's obvious to all that hiking employer national insurance is a clear breach of Labour's manifesto. Rachel Reeves herself previously called it anti-business and we agree, it is a tax on work that will deter investment, employment and growth, and the OBR says it will lower wages."