Government moves to increase employer national insurance contributions (NICs) have been supported by MPs, amid Tory claims the “jobs tax” will damage the economy.
The House of Commons voted 332 to 189, majority 143, in favour of giving the National Insurance Contributions (Secondary Class 1 Contributions) Bill a second reading.
The Bill seeks to make changes to employers’ NICs from April 6 2025, with the policy the main tax rise in the first Budget of Chancellor Rachel Reeves.
The Treasury estimates the policy could raise £25.7 billion a year, although the Office for Budget Responsibility (OBR) believes the actual amount of money generated for the Exchequer will be around £16.1 billion by 2029/30 as firms curb wage rises, cut hours and reduce profits while public sector employers get compensation in their budgets for the change.
The changes include increasing the rate of employers’ NICs by 1.2 percentage points to 15%, with payments starting when an employee earns £5,000, down from the current £9,100.
Ms Reeves has repeatedly argued the changes stick to Labour’s manifesto commitment of not increasing income tax, VAT and national insurance on employees, although this has claim has been doubted by the Opposition.
Shadow chancellor Mel Stride said in a statement after the vote: “Today Labour had the opportunity to do the right thing, and to stick with their manifesto promise not to increase national insurance. They failed to do so.
“Despite being presented with the overwhelming evidence that this hike will lead to lower wages, fewer jobs, businesses closing and lower growth, Labour MPs have still forced their jobs tax through Parliament.
“But broken promises have consequences. Labour will discover that not only will this tax damage the economy, but they will increasingly lose the trust of the British people.”
MPs used the second reading debate to raise concerns about the impact of the changes on GPs, hospices and businesses.
Treasury minister James Murray told the Commons: “We recognise that we are asking businesses to contribute more and we recognise that that will have impact, but it will be up to individual businesses to decide how to respond to those changes.”
Intervening, Labour MP Clive Lewis (Norwich South) argued there is a “need for better targeting”, adding: “Is there not a better way to target perhaps micro-businesses and social enterprises, to better able (them to) manage what is quite a tough Budget for some of them?”
In response, Mr Murray said “tough decisions have had to be taken throughout this Budget”.
Labour MP Stella Creasy (Walthamstow) welcomed the doubling of the employment allowance, but added: “85% of places are in private and co-operative nurseries, will he look at extending the employment allowance that he’s giving to state nurseries to private and co-operative nurseries as well, so we can support childcare expansion?”
Mr Murray replied: “The eligibility for the employment allowance is not changing.”
Conservative MP Joe Robertson (Isle of Wight East) raised warnings that hospices face a £30 million bill as a result of the changes.
He said: “Partnerships like GP practices, charities like hospices, businesses like pharmacies, dentistry and social care providers – none of those key healthcare services, which the NHS cannot exist without, share in that exemption to national insurance contribution rises.”
Reform UK MP Rupert Lowe (Great Yarmouth) said: “This national insurance increase, and threshold cut, is simply a tax on jobs in the private sector. It will result in less employment, less bonuses, smaller pay rises, and higher prices, and for what? To fund a state that is out of control and shows no regard for taxpayers’ money.”
Closing the debate, Treasury minister Tulip Siddiq said: “Our priority in this Bill is to restore stability to our economy, repair the public finances to fix our economy, support long-term economic growth.
“The Chancellor recognised that to do this the Government needed to make difficult decisions, that’s why the measures in this Bill are asking employers to contribute more.”
The Bill will undergo further scrutiny at a later date.