Rachel Reeves is considering introducing national insurance on employer pension contributions as a way of raising revenue in the budget.
Treasury officials are examining the potential levy, which experts have said could raise as much as £17bn for the exchequer.
Labour’s manifesto included a commitment not to raise national insurance as part of a “tax lock on working people”, and government sources said on Wednesday the commitment applied to working people and not businesses.
A Treasury source indicated that the levy was being considered and said: “The commitments in the manifesto were clear and about protecting the incomes of working people.”
Pensions taxation is seen as a prime target for reform in Labour’s first budget on 30 October. Reeves is looking for ways to raise revenue without increasing taxes on working families or cutting public services.
Steve Webb, a former Liberal Democrat pensions minister, said it would be the least politically difficult way to recoup some of the £49bn tax relief afforded to pensions each year.
Webb, who is a consultant at Lane Clark & Peacock, said the policy was “simple and raises meaningful amounts of money – billions – so for all of those reasons they would look at it seriously. It’s got a lot of attractions.”
He said the move would have no impact on people’s pay packets and that, unlike other potential measures, it should not hit public sector workers.
“It’s a tax on employers, and although the money is coming from somewhere, it’s much less immediately obvious to voters what you’ve done,” he said. “They could do it gradually and if it went well they could increase it.”
The Institute for Fiscal Studies (IFS) said in a report earlier this week that it would be sensible to move towards levying employer NICs on employer pension contributions even though Labour’s manifesto pledge might make that difficult.
The thinktank estimated that if employer NICs were introduced on pension contributions at the full 13.8% rate it would raise about £17bn a year.
The Resolution Foundation said in a report last month that the measure could raise £12bn a year after reimbursing public sector employers for the additional costs.
Keir Starmer twice declined to rule out making changes to employers’ national insurance payments at prime minister’s questions on Wednesday. Questioned by Rishi Sunak, the leader of the opposition, Starmer implied that his manifesto commitment not to raise national insurance only applied to employee payments.
In the Commons, Starmer said: “We made an absolute commitment in relation to not raising tax on working people.”
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Pressed again, the prime minister added: “We set out our promises in the manifesto. We were returned with a huge majority to change the country for the better, and I stick to my promises in the manifesto.”
Sunak told the Commons: “It is clear he’s opened the door to raising employer national insurance contributions, including on pensions, and fiddling the figures so that he can borrow more.”
The IFS report said the existing pension tax system “provides overly generous tax breaks to those with the biggest pensions, those with high retirement incomes and those receiving big employer pension contributions, and there is a strong case for reform”.
Asked whether the government would rule out raising employers’ national insurance contributions in general, Starmer’s spokesperson told reporters: “When it comes to taxes, I’d have nothing to add beyond what is in the manifesto, which is clear that we will ensure taxes on working people are kept as low as possible, and that we will not increase taxes on working people, which is why we will not increase national insurance, income tax or VAT.”
Reeves has opted not to raise tax on pension contributions, according to reports this week.
Source: theguardian.com
