Chancellor admits working people will pay for tax hikes

Rachel Reeves has admitted her tax-grabbing Budget will hit the pay packets of working people as the Institute for Fiscal Studies (IFS) accused her of undermining trust in politicians.

- ARCHIE MITCHELL, DAVID MADDOX, MILLIE COOKE

The chancellor was forced to accept that her decision to hike employers’ national insurance contributions would lead to workers being paid less. But, in a damning assessment of Ms Reeves’s claims to have protected workers in Wednesday’s Budget, IFS director Paul Johnson said she risked “further undermining trust”.

“How the Budget red book can include the sentence ‘the government is not increasing the basic, higher or additional rates of income tax, national insurance contributions or VAT’ is beyond me,” Mr Johnson said.

Labour’s general election manifesto promised not to raise the taxes in a bid to protect “working people”, which a series of ministers and Sir Keir Starmer went on to struggle to define. But, on Wednesday, Ms Reeves hiked employers’ national insurance contributions from 13.8 per cent to 15 per cent, something she argued does not breach the commitment because it does not show up on employees’ payslips.

Mr Johnson yesterday said: “The continued pretence that these changes will not affect working people risks further undermining trust.”

The Office for Budget Responsibility estimates that, by 2027, 76 per cent of the costs of the additional tax will be passed on to workers through lower wages.

Joining Mr Johnson, Resolution Foundation boss Mike Brewer said the levy is “clearly a tax on working people”.

He added: “This will definitely show up in wages, this is definitely a tax on working people, let’s be very clear about that.” Adding to the pressure on Ms Reeves, the Resolution Foundation found that by 2028, real weekly wages will have grown on average by just £13 in the past two decades.

And, quizzed about her national insurance hike on BBC Radio 4’s Today programme, Ms Reeves said: “Yes, this will have an impact on wage growth... what alternative was there?