2024-11-03 19:49:00
Chancellor Rachel Reeves has defended increasing taxes for employers in last week’s Budget while saying she is “not immune” to the criticism she has received.
However, she told the BBC money had to be raised in order to put public finances on a “firm footing”.
The decision to increase National Insurance (NI) contributions made by companies has come under fire from many businesses, including GPs who argue it could hit services for patients.
The new Conservative Party leader Kemi Badenoch criticised the movetelling the BBC it would not result in growth and would “make all of us poorer”.
Appearing on Sunday with Laura Kuenssberg, the chancellor was asked whether there was any chance she would rethink the NI rise for employers.
“I’m not immune to their criticism,” Reeves said, “but we’ve got to raise the money to put our public finances on a firm footing.”
Wednesday’s Budget outlined policies to increase spending by almost £70bn a year over the next five years.
About half of this is being funded by tax increases, with the other half coming from a rise in borrowing.
The NI rise for employers is set to raise £20bn a year making it one of the biggest single tax-raising measures in history.
From next April, employers will have to pay NI at 15% on salaries above £5,000, instead of 13.8% on salaries above £9,100 currently.
The Institute of General Practice Management, which represents GP practice managers, has estimated the rise will put up the tax bill of the average surgery by around £20,000 a year.
Businesses are likely to respond by holding back on pay rises, influential think tanks, the government’s independent forecaster and the chancellor herself have all said.
“It will mean businesses will have to absorb some of this through profits and it is likely to mean wage increases might be slightly less than they otherwise would have been,” Reeves previously told the BBC.
The Institute for Fiscal Studies (IFS) said the rise in employer NICs will affect larger firms hiring people on low wages the most, while the Resolution Foundation think tank described the move as a “tax on working people”.
A growing political divide
Also speaking to Sunday with Laura Kuenssberg, Badenoch said the Conservatives would be thinking about the economy “in a different way”, which would be “completely the opposite” of what Labour was doing.
She criticised the rise in employers’ NI contributions as being “not coherent” as most of the increase would be passed on through lower wages and higher prices, but she did not say whether or not she would reverse it.
This goes to the core of the growing political divide in UK politics, following the first Labour budget in 15 years and Badenoch’s victory.
The new Conservative leader believes lower taxes will help boost economic growth, with the tax burden too high even under her own government.
Labour has been willing to hike taxes because it believes without significant investment in the NHS, too many people of working age who have been ill will not be able to return to the labour market.
It also thinks without a further boost to education, people will lack the skills needed in a modern economy.
But the scale of the tax rises were never revealed before the election and the chancellor insists her hand has been forced because the public finances were worse than she anticipated when in opposition.
Some in Labour’s ranks feel she should “lean in” more to the arguments for greater borrowing and investment.
But Reeves insisted her budget was not “ideological” despite increasing taxes on some inherited land, second homes and flights on private jets, as well as imposing VAT on private school fees – something Badenoch has committed to reversing, branding it a “tax on aspiration that won’t raise any money”.
Reeves also denied that raising employer NI had been considered by Labour before they came to power.
“No, this was not something that was on the agenda before the election,” she said.
Asked if she had been wrong to say during the election that there would not be any extra taxes if Labour won, she replied: “What I was wrong about was the mess that the previous government had left for us,” citing the £22bn black hole that Labour say the Tory party left them with.
Earlier on Sunday, in an interview with Sky News, Reeves said she was wrong to say higher taxes would not be needed during the election as she “didn’t know everything”.
Reeves told the BBC the previous Conservative government cut NI contributions made by workers without the money to do so, but she had not reversed the move because it would be a “direct breach” of Labour’s manifesto.
The chancellor said Labour had had to make “difficult choices”, but she believed the economy was now “on a strong footing”.
Asked if she could rule out putting up more taxes during this parliament, Reeves said she was “not going to write four or five years’ worth of Budgets” on the programme.
However, she said Labour’s pledge “not to increase for working people the key taxes they pay – income tax, National Insurance and VAT – that is a commitment for the duration of this parliament”.
Farming row
Changes to the rules around inheritance tax have come under fire since they were announced in the Budget, with farmers angry about the loss of exemptions.
From April 2026, inherited agricultural assets worth more than £1m, which were previously exempt, will have to pay inheritance tax at 20% – half the usual rate.
Rebecca Wilson, a fifth-generation farmer from Yorkshire, told the Laura Kuenssberg programme that their farm could be facing a tax bill of nearly £1m when her parents died.
Reeves said a farm owned by two people could pass on “£3m essentially tax-free” and there would be 10 years to pay any tax owed.
She added that only “a very small number” of farms would be affected, but said last year 40% of the tax relief fell to “7% of the wealthiest land owners”.
“I don’t think it is affordable to carry on with a relief like that when our public finances are under so much pressure.”
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**Interview with Chancellor Rachel Reeves on Public Spending and Taxation**
**Interviewer:** *Welcome, Chancellor Rachel Reeves. Thank you for joining us today to discuss the recent Budget and your decision to raise taxes for employers. Many have voiced their criticisms. How do you respond to those who argue that this choice will harm businesses and services?*
**Rachel Reeves:** *Thank you for having me. I completely understand the concerns being raised. The decision to increase National Insurance contributions for employers was not taken lightly. However, we find ourselves in a situation where we need to stabilize public finances. Without these measures, we risk compromising essential public services and our capacity to invest in areas like the NHS and education.*
**Interviewer:** *You mentioned the need for public finances to be on a ”firm footing.” Can you elaborate on how this Budget will achieve that?*
**Rachel Reeves:** *Certainly. Our Budget outlines a plan to increase public spending by nearly £70 billion over the next five years. Half of that will come from tax increases, including the rise in employer National Insurance, and the other half through increased borrowing. This is aimed at ensuring that we can invest in the vital services that the public relies on.*
**Interviewer:** *Your critics, including Conservative leader Kemi Badenoch, argue that increasing taxes might not foster growth and could make everyone “poorer.” How do you justify the tax hikes in that context?*
**Rachel Reeves:** *I understand her perspective, but I maintain that strategic investment is crucial for long-term growth. While some may see tax increases as a burden, we view them as necessary contributions to a stable and prosperous economy. It’s essential that we not only address current issues but also lay the groundwork for future opportunities.*
**Interviewer:** *The public has been skeptical about tax increases being revealed post-election. How do you address these concerns?*
**Rachel Reeves:** *I acknowledge the concerns, and indeed, I was wrong to state no extra taxes would be needed before the election. The condition of public finances was more critical than we anticipated, largely due to the legacy of the previous government. It was a surprise that came to light only after we took over.*
**Interviewer:** *You’ve mentioned the importance of investing in the NHS and education. How do you ensure that these investments translate into concrete improvements for citizens?*
**Rachel Reeves:** *We have to be transparent and accountable in our spending. The funds raised through the tax increases will be closely monitored to evaluate their impact. Investing in the NHS means better services and quicker access for patients, while investing in education aims to equip the next generation with the necessary skills. We must show the public that these difficult choices will yield positive outcomes.*
**Interviewer:** *Going forward, can you rule out further tax increases during this parliamentary term?*
**Rachel Reeves:** *It wouldn’t be prudent for me to commit to four or five years’ worth of Budgets at this stage. What I can assure is that any decision regarding future tax policies will be founded on a careful assessment of economic conditions.*
**Interviewer:** *Thank you, Chancellor Reeves, for your insights. It’s clear that the current economic climate poses significant challenges, and we look forward to seeing how your measures unfold.*
**Rachel Reeves:** *Thank you for the opportunity to discuss these important issues.*
