Rachel Reeves warned her Budget on October 30 would be “tough” as she gave the clearest signal yet that businesses will face a hike in national insurance.
The Chancellor stressed that Labour manifesto’s commitment not to increase national insurance contributions (NICs) related to taxes paid by working people – the employee element – rather than the sum paid by employers.
Ms Reeves insisted the difficult decisions in the Budget would not put off business investment in the UK because she would offer firms long-term certainty about the levels of taxation they will face.
But the looming tax increases could dampen business enthusiasm for the Labour administration.
Ms Reeves told reporters at the summit in the City of London that there would be no increase in investment unless the Government could reassure the markets that it offered stability.
I didn’t come into politics to raise taxes on working people. Labour will not put up your income tax, national insurance or VAT.
The Conservatives are the party of high tax.
— Rachel Reeves (@RachelReevesMP) June 4, 2024
Indicating that employer NICs were in her sights, she said: “We were really clear in our manifesto that we weren’t going to increase the key taxes paid by working people: income tax, national insurance and VAT and, on the business side of commitment, that we would cap corporation tax at its current rate of 25% which was the lowest in the in the G7 and we will stick to the commitments we made in our manifesto.
“But you know that there’s a £22 billion black hole over and above anything that we knew about going into the election that we need to fill, and that’s not just for one year, but that persists throughout the forecast period.
“The precondition for bringing investment into a country is economic and fiscal stability. So we are going to need to close that gap between what the Government is spending and what you’re bringing in through tax receipts.
“I have been really clear that the first of our fiscal rules is that we will pay for day-to-day spending through tax receipts.
“At the moment, we’re not on track to be able to do that by the end of the parliament, because of that black hole, and so decisions will need to be made. But you know, we are going to be a government that sticks to our manifesto commitments, including that one.”
At the Budget, she will publish a business tax road-map, setting out the burdens firms will face under Labour.
“Businesses want two things: They want a competitive tax system and competitive regulation and planning and all the rest of it,” she said.
“But they also want stability, and what we’ve really lacked in Britain, which has put off investors – you can’t get over that hurdle of ‘is Britain a good place to invest’ until you’ve persuaded people that we are stable fiscally, financially, economically, politically.”
She added: “If we come out of that Budget and there’s not a serious plan to balance day-to-day spending through tax receipts, get debt down as a share of GDP, I’m afraid businesses will continue to look at Britain and say that we’re not serious.
“And so I don’t regard it as a dilemma between returning the economy to a path of stability on the one hand and attracting investment on the other.
“Unless you put Britain on a stable economic and financial path, we’re not going to be able to get that investment in.
“And that will mean some difficult decisions, including on taxation. But businesses get that.
“They know that we’ve got to be able to pay for day-to-day spending through tax receipts. They want to see a path to balance the books, but we’ve got to do it in a way that you know is also ensuring that we remain competitive in the global economy.”
One of the measures already announced to fill the “black hole” was the controversial decision to scrap winter fuel payments for millions of pensioners who are not on pension credit or some other benefits.
Ms Reeves said: “Applications for pension credit are up two or three-fold, which is really encouraging, because that means that we’ll have more people who actually keep the winter fuel payment, but also get hundreds, if not thousands, of pounds extra a year.
“And that will help some of the poorest, because I am determined to do everything I can to help the poorest pensioners, and that’s why we both kept winter fuel payment for them, but also working really hard with campaign groups and charities and others to boost take up.”
In her speech closing the investment summit, Ms Reeves told the world’s biggest businesses they can look forward to “a true partnership” with the new Government as it works to boost growth.
She went on to announce two new bodies intended to deliver long-term investment in the UK using both public and private finance.
The existing Leeds-based UK Infrastructure Bank will be transformed into the National Wealth Fund (NWF) with £27.8 billion to invest in clean energy and growth industries.
The NWF, which will have a broader mandate than just infrastructure investment, is expected to catalyse significant private investment in key sectors.
Ms Reeves also announced a new British Growth Partnership within the British Business Bank (BBB).
The partnership is expected to help bring institutional investors such as pension funds together with the BBB to make long-term, fully commercial investments by the end of 2025.
Encouraging British pension funds to invest more in the UK was a key goal of the previous government, and one the new Cabinet is also pursuing.
