National Insurance cuts implemented by the previous Government have left the Labour Party with a £15.6billion tax “hole to fill”, experts have claimed.
Analysis of HM Revenue and Customs (HMRC) figures by Blick Rothenberg suggests Prime Minister Keir Starmer and Chancellor Rachel Reeves will have to balance the books after decisions made by the Conservative Party in power.
Under the previous Prime Minister Rishi Sunak and Chancellor Jeremy Hunt, the National Insurance rate paid by workers and the self-employed was cut twice.
In the last two years, the levy’s rate for employees was cut from 12 per cent to eight per cent, while those who are self-employees paid saw their rate slashed from nine per cent to six per cent.
As such, the Tories claimed the average employee making around £35,400 annually would save over £900 a year.
However, the fiscal responsibility of this decision is being called into question with this week’s latest HMRC figures.
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Labour’s Shadow Chancellor Rachel Reeves has promised not to raise taxes further
PA
Figures show that National Insurance reductions introduced by the Tories are causing NI payments to plummet £1.3bn each month compared to the previous years.
This will be particularly concerning for the new Labour Government as funds from the tax are used to partially pay for the NHS and the state pension.
Concerns have been raised over the long-term viability of the retirement benefit’s funding model as well as money for the fledgling health service.
Going into the General Election, both Labour and the Tories pledged to not raise income tax, National Insurance or VAT.
Experts have claimed this will leave little leeway for Government spending over the next couple of years which could hamper Starmer’s agenda.
Joe Neal, a tax manager at Blick Rothernberg, criticised the last Government’s National Insurance cut as a blatant pandering for votes.
He explained: “The Conservatives in their last few budgets reduced the main rate of NI for employees from 12 per cent to eight per cent and for self-employed individuals from nine per cent to six per cent cent.
“This was a last-ditch attempt to win votes in the election. But has now left Labour with a headache of how to fill the gap.”
The last Chancellor Jeremy Hunt slashed National Insurance twice
PA
“HMRC’s latest stats released today reveal that the NI takings for the first two months of the 2024/25 tax year are £2.65 billion less than the first 2 months in 2023/24.
“The takings in April and May 2024 were £25.1bn compared to £27.7bn in the April and May 2023.”
“Overall this means that NI takings are £1.3billion down each month compared to the previous year. Extrapolated out this could be £15.6billion over the course of the year that Labour will have to find from somewhere.
“Labour have already pledged not to increase income tax, NI or VAT so it remains to be seen how this hole will be filled.”
