Autumn Budget: Another major NICs tax raid on the cards, economists warn
Another multibillion-pound national insurance raid is on the cards at the forthcoming autumn Budget, economists have warned, as chancellor Rachel Reeves scrambles to plug a £30bn fiscal black hole.
A combination of changes to the rules governing National Insurance Contributions (NICs) and income tax is set to rake in an extra £15bn in extra tax receipts, according to researchers at Oxford Economics.
The likely measures include:
- Extending the freeze on income tax allowances and NICs thresholds to the 2029/30 tax year, dragging millions more employees into paying higher rates of tax and raising an extra £10bn;
- Introducing a new rate of NICs on private companies’ contributions to employees’ pension schemes, currently exempt from NICs, raising £2bn;
- Extending NICs rules to cover landlords, raising £2bn;
- Extending NICs rules to cover Limited Liability Partnerships such as law firms and investment funds, who currently don’t pay the tax, raising £1bn.
The potential changes follow a major NICs rate at last year’s Budget, which saw the rates of employer NICs increased on top of lowering the tax-free threshold, a move which added billions of costs for major employers in industries such as retail and hospitality.
But Oxford Economics said Reeves would likely stop short of raising the rates of income tax or NICs, moves which would violate Labour’s manifesto promises.
“We regard a freeze in income tax allowances and NICs thresholds a near certainty,” said Michael Saunders, senior advisor at Oxford Economics.
“[But] in our view, it’s highly unlikely that the Chancellor will lift the main rates of income tax, VAT, employees’ NICs or corporation tax, given Labour’s manifesto commitments.
“Another rise in employers’ NICs is also unlikely, because of the adverse effects of employment and inflation of last year’s hike. Rather, the emphasis will be on broadening the tax base [and] cutting tax allowances.”
Banks brace for windfall taxes
A rise in “sin taxes” such as higher levies on betting was also likely, Oxford Economics said, as well as a new windfall tax on banks, with the two moves raising a combined £8bn.
As much as £5bn could also be raised from changing the tax treatment of pensions, including by setting a uniform 30 per cent rate for tax relief on pensions contributions and cutting the tax-free lump-sum on pension ceiling to £100,000.
The sums Reeves will need to raise will depend in part on the productivity forecasts of the UK’s fiscal watchdog, which has previously taken a more optimistic view compared to other major forecasters.
“Financial market worries over the UK’s fiscal prospects may decline a bit, because of the Chancellor’s willingness to act through tax hikes and some spending restraint to stick within the fiscal rules,” Saunders said.
“However, worries over the UK’s fiscal outlook will probably not be fully assuaged unless or until the UK can show it’s on a solid path to fiscal sustainability.”