Labour’s tax rises will not hit workers’ payslips, the education secretary has promised, as the government prepares to announce one of the most significant budgets in recent history next week.
Bridget Phillipson said on Sunday morning that the tax rises being planned by Rachel Reeves would not affect employees’ take-home pay, as ministers struggle to explain what was meant by their manifesto pledge not to increase taxes on “working people”.
The chancellor is expected to announce an increase to employers’ national insurance contributions on Wednesday in a move that could raise between £8.5bn and £20bn.
However, ministers say this would not break the party’s manifesto promise not to increase national insurance because raising employers’ contributions does not count as a tax on working people.
Phillipson told BBC One’s Sunday with Laura Kuenssberg: “What we set out in our manifesto was that we would not increase VAT, national insurance or income tax on working people. And coming out of this budget, working people will not see higher taxes in the payslips that they receive. That is really important, because we know the pressures that people are under.”
Reeves will on Wednesday present the first Labour budget in 15 years, which is likely to include about £40bn worth of tax rises and spending cuts, coupled with changes to the government’s debt rules to allow her to spend billions more on infrastructure in the long term.
The chancellor told the Observer this weekend her budget would be as momentous as any in the party’s history, saying: “In 1945, we rebuilt after the war; in 1964, we rebuilt with the ‘white heat of technology’; and in 1997, we rebuilt our public services.
“We need to do all of that now.”
The most significant tax increase is likely to be a 1p or 2p rise in national insurance contributions, along with a reduction in the threshold at which companies begin paying those contributions.
The chancellor is also planning to raise VAT on school fees, to increase inheritance tax on land and to raise capital gains tax on money made from selling shares.
The series of planned tax rises have led to a row over whether Labour is about to break the promises it set out before the election. In its manifesto, the party promised: “Labour will not increase taxes on working people, which is why we will not increase national insurance, the basic, higher, or additional rates of income tax, or VAT.”
Much of the debate has centred on what Labour meant by “working people”. The prime minister, Keir Starmer, attempted to clarify that last week by saying he used the term for people who earn money through work rather than from assets such as shares or property, though Downing Street later said that people who owned small numbers of shares could count as working people.
The row is causing worry among some in Labour. Peter Mandelson, the Labour peer and former cabinet minister, said he wanted to see universities reimbursed for the tax rise in the same ways that other public sector organisations will be.
Mandelson, who is running to be the next chancellor of the University of Oxford, said: “If the chancellor, as predicted, reimburses other parts of the public sector, including schools and hospitals but not universities from the impact of this tax hit, universities will be forced to reduce their contribution to lecturers’ and teachers’ pensions with calamitous consequences for future benefits.”
Andrew Griffith, the shadow technology secretary, told the BBC on Sunday: “You’re about to see a government come to office on the promise of no increase in taxation, no increase in borrowing – they’re about to break all of those promises.”
