Friday, November 1, 2024

Workers warned Budget tax rises will hit their wages

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Workers have been warned their pay will be hit by Budget tax rises aimed at employers.

Firms will bear the brunt of the Budget’s £40bn total tax rise due to an increase in the National Insurance rate for employers as well as a reduction in the threshold at which they start paying it.

Businesses are likely to respond by holding back on pay rises, influential think tanks, the government’s independent forecaster and the chancellor herself have all said.

“It will mean that businesses will have to absorb some of this through profits and it is likely to mean that wage increases might be slightly less than they otherwise would have been,” Chancellor Rachel Reeves told the BBC.

James Smith, research director at the Resolution Foundation think tank which aims to improve living standards for low-to-middle income families, agreed.

“Even if it doesn’t show up in pay packets from day one, it will eventually feed through to lower wages,” he said.

“This is definitely a tax on working people, let’s be very clear about that.”

Other Budget measures, including a big boost to spending on public services are expected to raise inflation in the short term, which could prevent interest rates falling more quickly.

That will also have a knock-on effect on people’s spending power.

The government has pledged to make economic growth its priority and said people would have more “pounds in their pockets” by the end of the parliament.

In its general election manifesto, Labour promised not to increase taxes on “working people” – explicitly ruling out a rise in VAT, National Insurance or income tax.

The pledge has come under scrutiny, with some claiming that Labour have broken it with the rise in employer’s National Insurance Contributions (NICs), something the government has denied.

The Budget has sparked a debate over how much of the tax rise firms can absorb.

The Office for Budget Responsibility (OBR) forecasts that by 2026-27, some 76% of the total cost of the NICs increase will be passed on through a squeeze on workers’ pay rises and increased prices.

The OBR expects that as a result of the Budget, average household income – which includes the impact of tax changes directly and indirectly, and benefits – will increase only slowly over the parliament.

[BBC]

However, projected income growth is slightly faster than the 0.3% annual average between 2019 and 2024, a period which saw a series of economic blows including Brexit, the pandemic and energy price rises following Russia’s invasion of Ukraine.

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