According to reports, Rachel Reeves is considering imposing national insurance on employers' pension contributions in the upcoming Budget. The Times initially reported this move, which could generate £15.4bn, significantly contributing towards the £40bn that Reeves aims to raise through a mix of tax increases and spending cuts.
However, public sector workers will be exempt from this change, as government departments would need to make substantial budget cuts to finance it. This exemption will cost the government £5bn, as per the Times, as reported by .
As the Budget nears, speculation about a potential increase in employers' national insurance has intensified. Labour's manifesto explicitly ruled out tax hikes for working individuals, encompassing income tax, national insurance, and VAT.
Yet, the government has not clarified whether the national insurance commitment includes both employee and employer contributions. Under existing regulations, employers are not required to pay national insurance on pension contributions they make for their employees as part of a salary sacrifice scheme.
This relief aims to promote pension savings. Experts have cautioned that eliminating this relief could jeopardise these schemes and deter private-sector companies from offering generous pension packages.
"Faced with rising costs, employers with more generous contribution policies going beyond the government-mandated, basic contribution rates may be forced to review these policies, undermining people's ability to achieve a comfortable retirement," said Felicia Hjertman, CEO of investment platform Tillit.
Business groups have previously cautioned that abolishing the relief would increase employment costs, particularly for small businesses.
In contrast, the Institute for Fiscal Studies (IFS) has argued that removing the relief would be "sensible", describing it as "generous, opaque and poorly targeted". However, it noted that "Labour's manifesto pledge not to increase NICs (national insurance) might make that difficult".
This move is expected to be part of a broader set of tax increases, with the government likely to raise capital gains tax and close loopholes in the inheritance tax system.
