A minister from the Treasury has recognized that the initiatives outlined in the budget do affect “working individuals” – yet maintained that Labour has not violated its manifesto commitments.
Darren Jones, the chief secretary to the Treasury, asserted that the government has “fulfilled” its pledge in its election-winning manifesto by refraining from raising tax rates on working individuals – particularly, income tax, VAT, and the national insurance contributions made by employees – although the latter was not detailed at the time.
Nevertheless, in her budget presentation, Rachel Reeves unveiled a £25bn increase in employers’ national insurance payments, while also decreasing the threshold at which they commence payments from £9,100 to £5,000 – which she described as a “challenging decision” to undertake.
This decision has rendered Labour susceptible to accusations of breaching its manifesto promises after the Office for Budget Responsibility (OBR), which oversees government spending strategies and effectiveness, indicated that most of the cost from the hike would be transferred to employees via reduced wages and to consumers with escalated prices.
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Ms. Reeves has also acknowledged that salary increments might be marginally lower than they would have been due to the increase in national insurance.
When questioned by Sky News’ Wilfred Frost about this “de facto clearly being a hit on working individuals” and the potential risk that the government could undermine public trust, Mr. Jones responded: “All I’m suggesting is that the Treasury, which establishes tax rates, is not increasing tax rates on working individuals. That was the commitment we’ve made.”
When pressed regarding the OBR’s evaluation, Mr. Jones remarked: “The OBR has forecast that in forthcoming years, wage growth may experience a decline as a result of employers having to contribute more.”
Frost interjected: “So it impacts working individuals?”, to which Mr. Jones answered: “Employer national insurance does, indeed.”
Ms. Reeves’s choice to elevate employers’ national insurance contributions from 13.8% to 15% starting April 2025 was one of the significant aspects in a budget that increased taxes by approximately £40bn – marking the largest tax rise since 1993.
Since presenting the budget on Wednesday, Ms. Reeves has worked to alleviate the anxieties surfacing in the financial markets.
Yields for 10-year UK bonds – which represent the cost or interest rate associated with long-term governmental borrowing – have surpassed 4.5% for the first occasion in a year.
Over the last three days, the British pound has also declined by 1.2% (in trade-weighted terms) – representing the most significant drop in 18 months.
Mr. Jones sought to minimize the negative response from the markets, informing Sky News that “a wealth of new information about the economy and the country’s finances” was shared with parliament during the budget on Wednesday, so “it’s typical for markets to react”.
He expressed that the UK has “PTSD” [post-traumatic stress disorder] from Liz Truss’s mini-budget, which resulted in a spike in borrowing costs and caused the pound to plummet to a 37-year low against the dollar.
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“I believe we all share PTSD from Liz Truss; let’s contrast the two scenarios, as they are fundamentally different: under Liz Truss, we witnessed her dismiss the permanent secretary, and overlook the independent Office for Budget Responsibility,” he stated.
“They proclaimed £45bn of unfunded tax reductions and declared that they were merely getting started. Subsequently, the markets reacted chaotically, and we all recall the aftermath.
“This stands in stark contrast to our current situation.”
