Former Bank of England governor Mervyn King has joined the debate over National Insurance by arguing Chancellor Rachel Reeves should ditch her manifesto pledge and raise it in the forthcoming Budget.
In an open letter to the Chancellor, published in the Independent, King said that rather than increasing borrowing Reeves has to be ruthlessly honest with the public and “Keep it simple”.
“Resist the temptation to fiddle with the tax system – it is time to take a proper look at the various schemes that have been introduced by successive chancellors since the last major overhaul by Nigel Lawson.”
National Insurance rises should be targeted at paying for investment in the economy to achieve growth, he said, with people also helped to save for their pensions.
National Insurance has become the Budget topic of the day after Reeves hinted yesterday that it might go up for employers though not for employees.
PM Keir Starmer today also refused to rule out a hike in NI for businesses but swerved when asked if this was not contrary to his manifesto commitment.
He told the BBC he was "Very clear in the manifesto that we wouldn't be increasing tax on working people".
Reeves needs to find an estimated £25 billion to carry out plans for public spending in the Budget.
Currently, employers pay NI on salaries above £175 a week but applying the 13.8% rate across all salaries could raise £17 billion a year, estimates the Institute of Fiscal Studies.
Alternatively, the government could raise the rate for businesses but hiking what is already called a ‘tax on jobs’ might be hard to square with the government's growth plans.
Business organisations were quick to express their concern about the possibility of a rise.
Rain Newton-Smith, chief executive of the CBI, told the BBC any such move would "increase the cost of taking someone on".=
Kate Nicholls, chief executive of UK Hospitality, higher NI charges would "particularly hammer sectors like hospitality, where staffing costs are the biggest business expense".
Alex Veitch, director of policy at the British Chambers of Commerce, said the move would "simply hobble growth and lead to businesses having less money to invest in their staff".