Shoppers face higher prices when National Insurance hikes come into force in April, a powerful committee of MPs has warned.
Boris Johnson is under mounting pressure from Tory MPs to scrap the planned 1.25 per cent increase in NI contributions, as he battles to shore up his struggling premiership.
The manifesto-breaking tax rise was confirmed last September to tackle Covid backlogs in the NHS and to fund social care.
Splits are emerging among top Tories over the hike amid alarm about the looming cost of living crisis for families.
Work and Pensions Secretary Therese Coffey insisted on Thursday it would go ahead despite behind-the-scenes lobbying from some Tories for it to be scrapped.
"It should go ahead. That’s what’s been decided,” she told Times Radio.
“Parliament voted for the levy, it’s designed to support the NHS and future NHS support as well. It’s set to be happening in April, I see no reason why that will change."
But the Prime Minister's authority has taken a battering over the ongoing Downing Street partygate saga, giving angry Tories more leverage to press for the tax rise to be scrapped.
In a report published today, the Commons Treasury Committee warned that the rise in employer national insurance contributions would drive up inflation.
The committee pointed to an OBR forecast, stating that "the policy mix chosen at this Budget will act as a boost to inflation, identifying in particular the increase in employer National Insurance Contributions, and the large fiscal loosening that took place in the Spending Review".
Mr Johnson's aim for higher wage growth risks a "wage price spiral" if productivity doesn't rise, the MPs said.
The report added: "The Chancellor showed that he is alert to the fiscal risks of higher inflation and higher interest rates becoming entrenched.
"The Treasury should keep these risks at the forefront of their thinking when designing policies at future fiscal events."
Tory Committee chairman Mel Stride said: "With inflation rising significantly, concerns about pressure on the cost of living are growing.
"While the Prime Minister’s ambition to promote high wage growth is worthy, focusing on increasing wages without improving productivity is likely to be inflationary, and risks contributing to a wage price spiral.
"The Chancellor has stated his ambition to cut taxes before the end of the Parliament. In October, there was little room for manoeuvre, but there has been positive news from the public finances since then.
"While further good news may help him achieve this ambition, significant risks remain, most notably from the impact of inflation."
