Labour has imposed a £19.5bn stealth tax

The biggest revenue-raising item in the Budget will be paid for by employees.

The rabbit-in-the-hat of Rachel Reeves’ Budget was the end of Britain’s biggest stealth tax, but beneath it lay a new stealth tax that will raise tens of billions from employees.

In the 2022 Autumn Statement, Jeremy Hunt committed to keep the thresholds at which people begin paying tax frozen until 2027-28, using the wage growth stimulated by inflation to push millions of people into paying higher rates of tax. The Office for Budget Responsibility said the freeze would be equivalent to a 4p increase in income tax.

Today, Reeves said this huge tax hike would come to an end at the end of the period decided by Jeremy Hunt. This is politically astute because it means that however much people complain about how their taxes are rising under Labour, a lot of the tax rises in this parliament are entirely Jeremy Hunt’s fault.

However, Reeves introduced her own stealth tax. She told the nation’s workers, in a line used in recent days by Labour ministers, that they would not see extra income tax or National Insurance (NI) “in your payslips”. This is a sleight of hand, because while a UK payslip has to show the deductions for an employee’s NI contributions (NICs), it doesn’t show how much NI the employer has to pay.

This is convenient, because in today’s Budget Reeves has raised that amount considerably with a tax hike on employer NICs that will raise £23.8bn next year and £25.7bn by 2029-30. This is the largest revenue-raising measure in the Budget and according to HMRC, the rise will be paid by 940,000 businesses.

But the fiscal and economic forecast released by the Office for Budget Responsibility (OBR) to accompany the Budget today directly contradicts Reeves’ claim. “We assume that firms pass on most but not all of their higher tax costs to employees,” it states, before forecasting that employees will shoulder 60 per cent of the cost of the NICs hike in the first year, and then from 2026-27, “76 per cent of the total cost is passed through lower real wages”.

What this means is that by the OBR’s assessment, £19.5bn of the measure will be paid for by workers.

There is no other way to describe this than as a stealth tax on employees, of a very similar kind to that imposed by Rishi Sunak (who first froze the income tax thresholds) and Jeremy Hunt.

The allure of stealth taxes is clear: they can raise huge sums, but for any individual taxpayer it is fiddly to work out exactly how much extra tax they will be paying. The goose can be plucked while it frowns at its calculator.

For governments of any colour attempting to raise revenue from an unpredictable electorate, they have become all but inevitable. However honest and blunt the rest of Reeves’ statement was, however clear she wanted to be that there is a line between the two governments, they are connected by the need to squeeze the taxpayer in as obscure but lucrative a manner as possible. That new tax may not be immediately visible as a deduction in your payslip, but it’ll be there all the same.