Labour’s National Insurance Gamble Will Come With Serious Risks

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Keir Starmer has refused to rule out increasing employers’ national insurance contributions in the upcoming budget — following similar non-denials from business secretary Jonathan Reynolds and chancellor Rachel Reeves in recent days.

Speaking to the BBC this morning, Starmer was asked repeatedly whether Labour’s manifesto commitment ruling out an increase in NI focussed specifically on employees or extended to employers. But the prime minister insisted his party’s manifesto was “very clear” that the government will not hike taxes for “working people.”

Meanwhile, Lord Cameron has revealed he was planning to sanction two “extremist” Israeli ministers during his time as foreign secretary over their support for violent settlers and calls to block aid entering Gaza. More on that story here.

But today: more on the controversy surrounding Starmer’s employer NI non-denial, and the manifold political questions it begs. My thoughts below your daily lunchtime briefing.

Labour’s NI trap

Here’s a passage that Westminster intends to scrutinise beyond all proportion before Rachel Reeves unveils her first budget as chancellor on 30th October:

“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.”

On the surface, this paragraph (which appears on page 21 of Labour’s manifesto) is, well, manifest. During the election, marginally varying versions of the message were repeated across the media studios by campaigning shadow ministers — usually to side-step specific questions about the taxes (inheritance, capital gains, corporation) Labour had conspicuously not ruled out raising. And yet the core message — on NI, income tax and VAT — was never doubted.

But recent non-answers suggest the government is about to hike a tax that is, in fact, referenced in the above extract — or is it? There’s some confusion.

This morning, the prime minister was asked repeatedly whether the government could raise employer NI at the budget. But Starmer refused to engage with the substance of the inquiry, instead insisting the budget will be “tough” and that Labour will not hike taxes for “working people”.

The response has fed rumours that the government is leaning into a distinction, which isn’t explicitly outlined in the manifesto, between employee national insurance and employer national insurance. The apparent view emanating from Downing Street is that the manifesto’s commentary on NI is coloured by Labour’s broader pledge not to hike taxes on “working people”. Employees fall under this rubric, while employers do not. And, lo, some budget wiggle room is engineered.

This isn’t the first time we have heard this line from Labour. On Monday, Reeves insisted her party’s manifesto only spoke about not raising NI for “working people”. But Business Secretary Jonathan Reynolds was arguably more explicit on Sunday when he told Sky News that Labour’s promise not to increase NI was specifically “a reference to employees”.

That brings us to Westminster’s collective conclusion today: on 30th October, Reeves will announce employers’ national insurance is going up.

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Stepping back, the big challenge for Reeves at the autumn budget is to fill the £22 billion “black hole” she stresses was recklessly left behind by the last Conservative government. She must do so while working to limit any controversy surrounding the government’s revenue-raising measures — while ensuring Labour MPs are placated by more hopeful proposals — while signalling to the electorate the “change” really is beginning — and while ensuring that Labour continues to own the mantle of fiscal responsibility.

Finally, she must do so while keeping within the spirit, at least, of the narrow fiscal framework set out in the manifesto. (In other words, Labour must have a plausible counter to accusations of pledge-busting.)

Succeeding on all of the above counts is, in sum, a political impossibility. Linking these considerations are cruel intertwining trade-offs and traps that Labour must delicately navigate. Can Reeves, for instance, placate Labour MPs (stirred by the party’s winter fuel row), while vaunting the government’s fiscal responsibility? If so, does that mean the budget’s revenue-raising measures will be more controversial than anticipated?

It’s easy to see how a budget can unravel politically.

In the end then, this employee-employer NI distinction is one way Labour plans to square its Venn diagram of overlapping fiscal dilemmas. But it won’t be the government’s only ploy.

On top of this, Reeves will continue to arraign the last government in a bid to ensure it bears responsibility for the budget’s less popular measures. Meanwhile, reports suggest the chancellor will take a revising pen to her fiscal rules — a fact that will enrage Conservative MPs but lighten the mood in the Labour parliamentary party.

Yet the big underlying political questions still pertain to whether Labour’s likely NI hike is manifesto a breach or not — whether it’s a “not in the spirit” breach or straightforward de jure breach — and, indeed, whether such an inane distinction bears any meaning beyond Westminster discourse.

These points, it should be stressed, are about public trust in government; not economic or industrial strategy.

Already, an allegation has arisen that Labour left parts of its election manifesto deliberately ambiguous in order to avoid scrutiny during the campaign. The charge could prove difficult to dispel — especially given the more likely explanation, that Labour spotted some room for manoeuvre on NI only after polling day, is no more politically valid.

That brings us, finally, to the bigger picture. For Reeves doesn’t just need to balance the books this budget — she must also locate a sustainable equilibrium for a series of overlapping and competing political imperatives.

In all, it is probably the most difficult task the chancellor will undertake this parliament — with rather a lot at stake.

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