The UK’s new Labour government is facing a wave of opposition from business groups over its potential plans to raise the payroll tax, a key levy on employers, Bloomberg reports.
While Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves have not definitively confirmed the move, their recent comments strongly suggest that a hike is being considered ahead of the upcoming budget on October 30.
Executives from various sectors, particularly retail and hospitality, have warned that increasing the payroll tax, known as National Insurance, would negatively impact economic activity. This comes after both Starmer and Reeves indicated that their electoral promise not to raise NI only applied to the component paid by workers, not the rate levied on employers.
The potential tax hike is part of Reeves’ plan to address a £22 billion ($29 billion) deficit in public finances. However, this move risks contradicting Labour’s manifesto pledge to avoid raising income tax, national insurance, and value-added tax on “working people.” Government officials, however, argue that the manifesto wording allows for an increase in the payroll tax for businesses.
The opposition Conservative party, meanwhile, is seizing on the situation, criticizing Labour for not ruling out a rise in NI for employers during the election campaign.
Lifting the main employer rate of National Insurance by just one percentage point would generate an estimated £8.45 billion in the 2025-26 financial year, according to data from His Majesty’s Revenue and Customs.
