Rachel Reeves was warned against hiking National Insurance on employers’ pension contributions in a dramatic last-minute intervention by Lord Blunkett.
With just days to go before the October 30 Budget, the Labour peer warned that such a move would hit the pension pots of millions of people across the UK.
Labour has ruled out increasing the main rates of National Insurance, income tax and VAT, and has sought to caveat this manifesto promise as applying to “working people”.
Ministers have not denied that this is one option that has been considered as Ms Reeves seeks to find around £40 billion in tax rises and public spending cuts, mainly the former, to plug an alleged £22 billion black hole in the public finances which she claims she inherited from the Tories, which they deny, and spend billions more on the new Government’s priorities such as the NHS.
Lord Blunkett stressed that he had no insights into whether such an NI hike would be in the Budget.
“But if this one is correct and there is a proposal next Wednesday to put National Insurance on the pension contribution that employers pay then what is the logical outcome of that?” he told BBC radio.
“It is that employers will pay less in contribution to people’s pension pot.”
Speaking on Times Radio earlier, he stressed: “Employers have to pay into a pension pot at least 3 per cent.
“Now, a lot pay more than that and a good thing too because 3 per cent won’t crack it in terms of what people will inherit down the line.
“Therefore, anything you do that discourages employers from putting more money into the pension pot of their employees is going to be detrimental.”
The peer was Work and Pension Secretary in 2005 when the Government accepted the landmark report on pension auto-enrolment proposed by the Pension Commission headed by Lord Adair Turner.
“We did so on the basis that there was going to be a generation unlike my own who would have a rotten pension,” added Lord Blunkett.
“In other words, their retirement would be miserable.
“So, I think we have got an obligation to encourage employers to pay as much as possible into the pension pot.”
He stressed that he was not speaking out about the broader rate of NI for employers.
“That’s a quite separate issue,” he explained.
“But you don’t discentivise people from paying into and building a pension.”
He stressed that the Government needed to think long term as well as short term as it plans a string of tax rises, many of which could hit London hard.
His comments came as Ms Reeves faced a row over whether borrowing billions, by loosening her debt fiscal rule, for transport and other infrastructure projects would put upward pressure on interest rates, and mortgages for millions of households.
The Chancellor has warned of “tough choices” at the Budget on tax, public spending and borrowing given the state of the public finances rocked by the Covid pandemic, Vladimir Putin’s war in Ukraine, Brexit and to a lesser extent economic mismanagement under Liz Truss’ brief premiership.
“Rachel Reeves has been left a terrible hand,” emphasised Lord Blunkett.
He backed changes to capital gains tax, adding: “There are all kinds of things that have been floated.
“Rachel’s impossible task is to disseminate the right ones on Wednesday so that we get not just the picture of how we are going to meet the gap and how we are going to invest in our services which are in a desperate state but also the hope, the aspiration and perhaps also the energy that we need as a nation.
“I get the feeling that post-Covid we are a tired nation and more miserableness won’t do.”
He also said the Government needed to find a “different phraseology” for the people it is seeking to protect from the brunt of tax rises, which ministers have defined as “working people”, as he could not explain, for example, to people who had just retired whether they were included.
“Get this balance wrong and you end up hitting those who have investments and we need investment,” he said.
“We need people who are saving so that other people can borrow.”
