Warning, tax hikes could come amid black hole in government finances

Labor faces a £15.6 billion “hole to fill” from the Tories’ National Insurance cuts ahead of the general election, experts have warned. The revenue-spending gap has sparked rumors that Chancellor Rachel Reeves will be forced to raise taxes.

This warning comes from tax and audit experts Blick Rothenberg, based on an analysis of HM Revenue and Customs (HMRC) figures. The last Tory chancellor, Jeremy Hunt, cut national insurance tax on wages by 12 per cent to 8 per cent as the party presented itself as cutting taxes for workers to win votes ahead of the election. At the same time, the rate paid by the self-employed fell from 9 percent to 6 percent. As a result, the Tories argued that the average employee earning around £35,400 a year would save more than £900 a year.

Joe Neal, a tax manager at Blick Rothernberg, criticized the government’s latest national insurance cut as a blatant anti-vote. He said: “The Conservatives in their latest budgets cut the main rate of NI for employees from 12 per cent to eight per cent and for the self-employed from nine per cent to six per cent. This was a last ditch effort. to win votes at the election, but has now left Labor with a headache about how to fill the gap.”

He added: “The latest HMRC statistics published today reveal that NI receipts for the first two months of the 2024/25 tax year are £2.65 billion lower than for the first two months of 2023/24 have seen a drop in revenue. Receipts in April and May 2024 were 25.1 billion pounds, compared with 27.7 billion pounds in April and May 2023, it was reported.

This means NI receipts are down by £1.3bn each month compared to the previous year, which could mean a £15.6bn shortfall over the year which Labor will have to solve it. Speaking to GB News, Mr Neal said: “City councilors have already committed to not increasing income tax, NI or VAT, so it remains to be seen how this hole will be filled.”

Paul Johnson, director of the Institute for Fiscal Studies, highlighted the significant pressures on spending, including from public sector wages, saying: “The pressure to change the tax rules or find more tax money will be quite significant.”