The Chancellor has given the clearest signal yet that businesses will face a hike in National Insurance contributions in the Budget later this month.
Rachel Reeves vowed to create a tax system that supports wealth creation, but warned she faces “difficult choices” ahead of the Autumn Statement on October 30.
As she closed the International Investment Summit in London on Monday, Ms Reeves told leaders from the world’s biggest businesses that British economic instability had ended and the new Government was bringing investment and jobs back to the UK.
However, she continues to face questions about which taxes she will raise in advance of her first Budget after ministers have repeatedly refused to rule out out increasing employer National Insurance Contributions (NIC).
Ms Reeves told reporters at the summit in the City of London that there would be no increase in investment unless the Government could reassure the markets that it offered stability.
Indicating that employer NICs were in her sights, Ms Reeves said: “We were really clear in our manifesto that we weren’t going to increase the key taxes paid by working people: income tax, national insurance and VAT and, on the business side of commitment, that we would cap corporation tax at its current rate of 25 per cent which was the lowest in the in the G7 and we will stick to the commitments we made in our manifesto.
“But you know that there’s a £22billion black hole over and above anything that we knew about going into the election that we need to fill, and that’s not just for one year, but that persists throughout the forecast period.
“The precondition for bringing investment into a country is economic and fiscal stability. So we are going to need to close that gap between what the Government is spending and what you’re bringing in through tax receipts.
“I have been really clear that the first of our fiscal rules is that we will pay for day-to-day spending through tax receipts.
“At the moment, we’re not on track to be able to do that by the end of the parliament, because of that black hole, and so decisions will need to be made. But you know, we are going to be a government that sticks to our manifesto commitments, including that one.”In her speech Ms Reeves said companies could look forward to "a true partnership" with the new Government as it works to boost growth.
She added: "I understand that for every business, stability is the foundation of success. In the next fortnight, I will be finalising my first Budget as Chancellor of the Exchequer and the situation that we have inherited means that we face difficult choices.
"The first step that we must take to grow our economy is to restore fiscal and economic stability, because balancing the books by ensuring that we do not borrow for day-to-day spending is not anti-investment.
“In fact it is the only way to ensure that both Government and business can invest with confidence.”
Ms Reeves went on to announce two new bodies intended to deliver long-term investment in the UK using both public and private finance.
The existing Leeds-based UK Infrastructure Bank will be transformed into the National Wealth Fund (NWF) with £27.8 billion to invest in clean energy and growth industries, she said.
The NWF, which will have a broader mandate than just infrastructure investment.
Ms Reeves also revealed a new British Growth Partnership within the British Business Bank (BBB).
It is expected to help bring institutional investors such as pension funds together with the BBB to make long-term, fully commercial investments by the end of 2025.
Sir Keir Starmer already vowed on Monday to rip up investment-blocking red tape and make regulation “fit for the modern age”, as he wooed global business leaders at the glitzy summit.
King Charles was also enlisted in the Labour Government’s efforts to attract billions of funds for major projects in Britain, after the summit overcame a hiccup involving ports operator DP World.
