Rachel Reeves is under pressure to overhaul the UK’s tax system after the resolution foundation urges her to cut employees’ national insurance contributions by 2p and offset their employees’ national insurance contributions with an equal income tax rise.
The IQ, who has close ties with the senior labor minister, said the measure could add £6 billion in tax burden annually, including pensioners, landlords and self-employed people, including pensioners, landlords and self-employed people. Unlike income tax, these groups do not pay employees’ national insurance.
The foundation released a proposal of up to £30 billion in additional revenue, believing that the “2P conversion” will help “balance the playing field” while keeping the paid salaries of workers of workers aged workers unchanged. The plan reflects a debate raised by former Conservative Prime Minister Jeremy Hunt, who described National Insurance as an “unfair double tax” when he gave money last year.
However, the suggestion puts Reeves in a politically difficult position. While shifts will keep the net employee tax unchanged, this will technically constitute an increase in income tax – a labor commitment not to do so during election activities.
The intervention was prepared by the Prime Minister in the fall budget on November 26, which was downgraded from the office against the backdrop of faltering growth, towering borrowing costs and expected productivity. Economists believe Reeves faces a fiscal gap of up to £40 billion, putting her under pressure to tax revenues on the company, landlords and wealthier families.
The Resolution Foundation said Reeves should use the budget to rebalance the £100 million tax regime, reduce bias against employees, and raise more money from those with greater wealth. In addition to the NI Switch, it also recommends reforms such as extending employer national insurance to partnerships, tightening corporate tax compliance and taxation on sugar, salt and carbon-intensive travel.
“These wise reforms will increase incomes while causing minimal harm to workers and the wider economy. And by acting decisively, the Prime Minister can turn her entire focus to ensure stronger economic growth.”
A spokesman for the Ministry of Finance said: “The Prime Minister makes a tax policy decision on fiscal incidents. We do not comment on future speculation about changes in tax policy.”
