Government

IFS Highlights Breach of Labour Manifesto Concerns Over NICs

Published October 14, 2024

Keir Starmer received urgent warnings today regarding potential increases to employers' national insurance contributions (NICs) in the upcoming Budget. The head of the Institute for Fiscal Studies (IFS) stated that such a move would be a 'straightforward breach' of Labour's manifesto commitments.

Paul Johnson, the IFS director, emphasized that the Labour manifesto was unequivocal in its stance on NICs at a time when anxiety is escalating regarding the Chancellor, Rachel Reeves' proposed fiscal policies.

Recent discussions among ministers have suggested that only workers' NICs are subject to the commitments outlined in the manifesto, setting the stage for possible rate increases or the introduction of levies on employers' pension contributions.

According to a new analysis from the Resolution Foundation, Rachel Reeves will need to find additional revenue between £20 billion and £30 billion in the fiscal plan disclosed on October 30.

Reeves addressed a global investment summit in London, highlighting the necessity of maintaining strict discipline on spending while ensuring investment in capital projects is a priority.

In an effort to quell concerns about significant increases to capital gains tax (CGT), Starmer has attempted to reassure the public. The Prime Minister indicated that rumors suggesting the Treasury aims to raise the CGT rate to 39% are exaggerated.

As he spoke to hundreds of business leaders at the summit, Starmer aimed to project an optimistic message regarding Labour's vision for economic growth.

Labour's Commitment and Economic Challenges

Paul Johnson from IFS reiterated the Labour manifesto's position on NICs, clearly stating it prohibits any increase. He confirmed that the document does not differentiate between employee and employer contributions.

Concerns exist that imposing NICs on employers' contributions to pensions could generate up to £17 billion annually for the Treasury, creating detrimental impacts on retirement savings and hindering long-term investments.

Starmer faced pointed remarks from former Google CEO Eric Schmidt during a public discussion, where Schmidt criticized the UK's cautious mindset that he believes hampers progress.

Charlie Nunn, the CEO of Lloyds Banking Group, also expressed his apprehensions, emphasizing that pension investments are essential for the financial well-being of many individuals in the UK.

In the Resolution Foundation report released today, it was noted that the fiscal gap, which Reeves has consistently criticized, could remain around £19 billion. This situation may be exacerbated by projected overspending in public sector wages and asylum costs.

Senior economist Cara Pacitti detailed the significant challenges facing the Chancellor, hinting at unavoidable tax increases in the forthcoming Budget considering the government's pledges to avoid austerity while adhering to its debt and borrowing regulations.

Previously set plans by the previous government already anticipated a £20 billion cut to essential public sectors including the police, courts, local governance, and transportation. This is an issue both Labour and Conservatives have been reluctant to confront.

The Foundation projected that to meet budgetary goals, an increase of £20 billion to £30 billion in taxes would be needed to achieve the required fiscal flexibility.

Additionally, while the Resolution Foundation supported revisions to capital gains tax and inheritance tax, raising employers' NICs would contradict Labour's commitment not to alter national insurance rates.

IFS, Budget, NICs