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LONDON (Reuters) – Finance minister Rachel Reeves said on Wednesday she would raise employers’ social security contributions to 15% from April, a major revenue raiser for a budget the government hopes will kick-start moves to turn around a flagging economy.
Britain’s Labour government has long said those with the “broadest shoulders” should do more to help fix the public finances, which Reeves says were left with a 22 billion pound ($29 billion) black hole by the former Conservative administration.
But some companies and the opposition Conservative Party have cried foul, saying the increase could hurt the government’s priority of spurring economic growth by making it more expensive to hire new workers and reduce spending on training.
The rise in the National Insurance Contributions (NICs) that employers pay by 1.2 percentage points, combined with a decision to lower the threshold for when firms start paying to 5,000 pounds from 9,100 pounds per year, are set to be the budget’s single largest revenue raiser to help fund public services.
“We are asking business to contribute more and I know that there will be impacts of this measure felt beyond businesses … But in the circumstances that I have inherited, it is the right choice to make,” Reeves told parliament.
She said to smooth the move for Britain’s smallest businesses, the government would increase “the Employment Allowance from 5,000 pounds to 10,500 pounds”, meaning 865,000 employers would not pay any National Insurance at all next year.
The move is expected to fall entirely on the private sector, with public employers such as government departments and the National Health Service being reimbursed to avoid having to make cuts.
The increase is expected to raise “25 billion pounds per year by the end of the forecast period”, Reeves said, covering more than half of the 40 billion pounds that she is targeting to cover day-to-day spending with tax revenues.
In the last tax year, employers paid 60% of the 179 billion pounds raised by NICs, which are the second-largest revenue-raiser after income tax.
In a budget heavy on taxation and borrowing, the opposition Conservative Party says the move on employers’ NICs payments breaks Labour’s election promise made before its July landslide election victory that it would not raise taxes on “working people.
Labour has repeatedly said nothing in its first budget will break its manifesto pledge, with Prime Minister Keir Starmer promising to protect the pay of someone who “goes out and earns their living, usually paid in a sort of monthly cheque.
Instead, the government says the budget will help fix Britain’s economic foundations, a first step towards attracting more investment and reforming the country’s overly stretched public services such as the health and criminal justice systems.
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(Reporting by David Milliken and Elizabeth Piper; Editing by Christina Fincher and Hugh Lawson)