Budget: Labour grandee warns pension tax hike rumours are ‘very worrying’

Rumours over a hike in employer national insurance contributions on pensions in next week’s Budget have been described as “very worrying” by Labour grandee David Blunkett.

Blunkett, who served in Tony Blair’s cabinet as home secretary and secretary of state for work and pensions, said he would “advise strongly against” the changes in a letter published today in The Times.

“It is one thing to increase the rate of national insurance, and quite another to levy this on employer pension contributions,” said Blunkett.

“As the former work and pensions secretary who signed off, with Tony Blair and Gordon Brown, pensions auto-enrolment — which recognised the genuine crisis, for generations to come, in maintaining living standards in retirement — I would advise strongly against this.”

We need more employers contributing more than the basic three per cent and, with it, the corollary of savings and investment, not less. I sincerely hope the rumours are well wide of the mark.

Employers currently pay national insurance of 13.8 per cent on all earnings above £175 a week or £9,100 a year, but do not pay the tax on pension contributions they make for their employers as part of a salary sacrifice scheme.

Labour’s manifesto ruled out increasing taxes on working people, which includes income tax, national insurance and VAT. However, Chancellor Rachel Reeves is seemingly mulling hiking the employer pension contribution.

The tax would raise around £15bn a year, helping to fill the ‘Black Hole’ that the Chancellor said the previous government left in the public finances.

Rumours have also emerged that the public sector may be exempted from the change, because government departments would have to make significant cuts to their budgets to fund the move.

The move is likely to form part of a broader set of tax rises, with the government likely to hike capital gains tax and close loopholes in the inheritance tax system.