Speculation is gathering about what Labour will announce in its first Budget in almost 15 years at the end of this month.
The chancellor claims there is a £22bn “hole” in the public finances and that some taxes will be raised.
National Insurance contributions are the UK’s second-biggest tax, behind income tax. It is paid by employees and self-employed workers on their earnings and profits, and by employers on top of the wages they pay out.
Changes to the tax can be introduced – and generate cash – quickly, within weeks of a Budget, through digitalised payroll systems.
The government could decide to introduce a National Insurance levy on the pension contributions employers pay into workers’ pensions. Currently, this is tax-free.
The Institute for Fiscal Studies (IFS) think tank said the creation of a subsidy for employer pension contributions of 10% would raise around £4.5bn per year.
But Alice Haine, personal finance analyst at Evelyn Partners, said such a tax hike could have “unintended consequences” as businesses might then “choose to reduce headcount or stick to the auto-enrolment minimum for pensions to cut costs”.
Separately to pension contributions which are currently free from tax, employers pay 13.8% on a worker’s earnings above £175 per week.
The IFS told the BBC that HMRC has estimated that increasing the rate of National Insurance paid by employers by one percentage point to 14.8%, for example, could raise as much £8.5bn per year in the short term, but the think tank said it would be substantially less in the longer term.
Isaac Delestre, economist at the IFS, said the forecast does not take into account the impact increasing National Insurance could have on the amount the government generates from other taxes, such as income tax.
For example, employers could restrict wage rises, meaning employees would pay less on their individual National Insurance contributions and income tax. If businesses decided to absorb the extra cost, their profits might be lower, and therefore, the amount they pay in corporation tax could be less.
Mr Delestre said the situation for the government around potentially raising National Insurance was “quite delicate” in relation to the impact on other tax receipts.
Mr Veitch said that any tax rises should be “countered” by steps to incentivise investment, especially for smaller companies.
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