Rachel Reeves’ £25 billion tax raid on employer National Insurance contributions (NICs) will actually bring in “nothing like” the amount claimed by the Chancellor, the Institute for Fiscal Studies (IFS) has revealed.
Paul Johnson, the IFS’s director, warned that the hefty new tax on jobs will effectively depress wages, leading to a shortfall in expected revenue from both employer and employee NICs, as well as income tax.
Far from delivering a big win for the Treasury, the measure will instead result in a mere £10bn gain, after taking into account the Government’s decision to spare public sector workers from the hike.
Johnson commented: “This increase will not actually get the Treasury anything like the £25bn stated on the scorecard,” describing it as “not quite such the big revenue raiser as it looks at first glance.”
The IFS’s findings echo concerns raised by the Office for Budget Responsibility (OBR), which on Wednesday flagged Labour’s NICs hike as being overstated. The OBR’s assessment also noted that even with Labour’s new tax and spending plans, the outlook for the public purse remains “shaky,” with Johnson adding that the Chancellor’s goal to balance the current budget with a £10bn surplus could be tricky due to Labour’s hesitance to increase fuel duties and adjustments in interest rate expectations.
The IFS predicts that by the end of Parliament, changes in fuel duty policy and rate forecasts will drain an extra £5bn annually from the Treasury. To meet its spending commitments without slashing budgets in unprotected areas like transport and the environment, Labour will likely need to locate an additional £9bn to keep its promises intact.
A leading economist told the Conservative Post: “With this budget, Rachel Reeves isn’t just tightening the nation’s belt—she’s making sure it barely has one left to fasten.”