IFS Warns Budget Plans Could Violate Labour's Manifesto Commitments

Keir Starmer faced strong warnings today regarding potential changes to employers' national insurance contributions in the upcoming Budget. The head of the Institute for Fiscal Studies (IFS) stated that any such adjustments would represent a 'straightforward breach' of Labour's electoral manifesto.

The director of the IFS, Paul Johnson, emphasized that the manifesto was explicit about not raising national insurance rates. Concerns are growing about Chancellor Rachel Reeves' intentions, especially as some ministers have suggested that only the national insurance contributions (NICs) paid by workers are bound by the party's commitment. This opens the door for possible increases in rates or the introduction of levies on employers' pension contributions.

Budget Challenges and Revenue Needs

The Resolution Foundation has projected that Rachel Reeves will need to secure an additional £20 billion to £30 billion as part of the fiscal measures on October 30. This figure poses a significant challenge, prompting discussions about potential tax rises.

In her speech at a global investment summit in London, Reeves stressed the importance of maintaining discipline on spending while also noting that capital investment is essential for economic growth. She committed to creating a tax system that promotes wealth creation and increases business investments.

Concerns Over Capital Gains Tax Changes

Despite growing worries over substantial hikes in capital gains tax (CGT), Sir Keir Starmer sought to reassure attendees at the summit. He described calls for raising the headline CGT rate to 39% as 'wide of the mark'.

Paul Johnson reiterated that any increase in NICs or new levies on pension contributions could be detrimental to retirement funds and investment, labeling it a 'tax on jobs'. He argued that the Labour manifesto clearly states there should be no increase in NICs without exception.

Business Leaders Voice Their Opinions

At the summit, Starmer received feedback from prominent business figures, including Eric Schmidt, former CEO of Google, who highlighted that the UK's environment is stifled by negativity and indecision. Lloyds Banking Group CEO Charlie Nunn also expressed concerns that proposed changes might harm pension contributions, emphasizing the need for stronger pension plans for a significant portion of the UK's population.

Future Fiscal Outlook

The Resolution Foundation's report points to a potential 'black hole' of £19 billion in public finances. This deficit, attributed to overspending in areas like public sector wages and asylum costs, is expected to continue over the next few years, further complicating the fiscal landscape.

Senior economist Cara Pacitti painted a challenging picture, indicating that the government’s commitment to avoid returning to austerity and to meet its borrowing and debt rules would necessitate tax increases in the Budget. With previous spending proposals already including cuts to vital public services, avoiding these cuts may require significant tax hikes, likely in the range of £20 billion to £30 billion.

While the Resolution Foundation has proposed adjustments to capital gains tax, inheritance tax, and employers' national insurance contributions as potential means to raise revenue, any move to increase national insurance in a way that contradicts Labour's previous commitments could stir significant backlash.

budget, tax, Labour