Rachel Reeves has been warned that hiking national insurance will become Labour’s ‘poll tax’

The Labour manifesto which saw Sir Keir Starmer elected with a huge majority in July said the party would not raise taxes on working people

But Anna Leach of the Institute of Directors said the tax hike on employers would be ‘borne by workers’, hitting jobs and wages

The institute’s chief economist Anna Leach said: ‘Increasing employers’ national insurance would be a bad idea. A hike in NI represents a straightforward increase in business costs. It is essentially the equivalent of a poll tax on companies, and takes no account of whether a business is profitable or not.

‘At a time when business confidence is low, hiring plans have already been hit, and vacancies are falling, this will hit employment prospects and earnings.’

She added: ‘The Government is seeking to make a distinction between taxes on working people and taxes on business, with the former being exempt from tax increases following manifesto commitments. However, this is a false dichotomy.

‘The effects of higher national insurance costs will be borne by workers.’

Speculation about wider tax hikes in the upcoming Budget has brought into question Labour’s much-trumpeted claim that it is prioritising growth.

Charlie Mullins, the founder of Pimlico Plumbers, said it was ‘no surprise that a Labour Chancellor is planning to squeeze more out of businesses’.

He added: ‘Reeves has no idea how business works and therefore no concept of what damage she might do.

‘Starmer’s crazy crew are playing with levers they don’t understand and we will all face the consequences of their economic ignorance in coming years.’

Former Sainsbury’s boss Justin King said: ‘National insurance is a tax on jobs and therefore working people.

‘Higher tax will in time be reflected in higher prices to consumers and lower pay, and perhaps fewer jobs too. It is not a tax without consequence.’

It came as:

• An audit revealed Sir Keir and his top team ruled out NI hikes at least 11 times in the run-up to the Election;
• The PM faces a Cabinet backlash over proposed cuts to departmental spending in the Budget on October 30;
• The hospitality sector said it was getting a ‘kicking’ from Labour with the double whammy of NI increases and a ‘quagmire’ of new workers’ rights;
• A surprise fall in inflation has paved the way for interest rates cuts this side of Christmas.

Yesterday the chief secretary to the Treasury became the latest Cabinet minister to refuse to rule out an NI hike – echoing the Chancellor and the Prime Minister earlier this week.

Asked about the possibility of the move, Darren Jones said: ‘All tax changes will be announced by the Chancellor at the Budget to Parliament.

‘We will honour our promises to the British people as we set out in our manifesto at the Election, which is that we will not be raising taxes on working people so we will not be increasing income tax, national insurance or VAT on working people.’

In 2021, employer NICs were raised by the Conservative government but the policy was soon reversed after a business backlash. At the time, Ms Reeves herself said the move was the ‘worst possible tax rise at the worst possible time’ and would hit workers’ pay.

Today, companies pay a 13.8 per cent NI rate which is separate from the national insurance rate paid by employees. Accountants RSM estimate that adding a percentage point to take the employer rate to 14.8 per cent would deliver an annual £8.5billion boost to the Treasury.

That presents a tempting option for Ms Reeves as she seeks to fill a £22billion ‘black hole’ in the public finances. Whitehall sources have said that tax rises and spending cuts in the Budget could total £50billion.

Labour has tied its hands after promising during the Election not to levy increases on VAT and corporation tax as well as taxes on ‘working people’.

It now argues that the latter covers income tax and employee national insurance but not employer contributions.

Asked about the possibility of the move, Darren Jones said: ‘We will honour our promises to the British people as we set out in our manifesto at the Election, which is that we will not be raising taxes on working people so we will not be increasing income tax, national insurance or VAT on working people’

In 2021, employer NICs were raised by then-Chancellor Rishi Sunak but the policy was soon reversed after a business backlash

The Conservatives’ business spokesman Kevin Hollinrake said last night: ‘The Institute for Directors has just confirmed what every business owner in the country knows already – this jobs tax would be damaging for businesses and their employees.

‘If Labour go through with this it will be a blatant manifesto breach.’

Tina McKenzie, from the Federation of Small Businesses, said: ‘Increasing employer NI contributions will threaten job creation and put a real squeeze on wage growth, negatively impacting both businesses and employees.

‘Small businesses will be pushed to the brink if employment costs continue to surge.’