Chancellor Rachel Reeves is reportedly planning to cap the amount of salary that can be sacrificed for pension contributions before national insurance is incurred, at £2,000 per year. The move, which could raise up to £2bn annually, would primarily affect higher earners.
Sources told The Times that employee contributions exceeding £2,000 would be subject to national insurance. An employee earning £50,270 and contributing 10% via salary sacrifice would pay an extra £240 a year in national insurance under the proposal.
The chancellor is also considering limiting the national insurance exemption for employers, potentially adding £450 on the same income. However, she has reportedly decided not to cut pension lump-sum withdrawals, allowing retirees to still withdraw up to £268,275 tax-free.
Despite Labour's manifesto pledge not to raise income tax, national insurance, or VAT, Reeves is said to be weighing a 2p rise in income tax balanced by a 2p cut in national insurance. This comes as she warns that "we will all have to contribute" to address a £30bn hole in public finances.
Labour's deputy leader Lucy Powell cautioned that breaking the manifesto could damage "trust in politics." Polling indicates only one in five voters supports the reported plans, though the political damage might be mitigated if paired with taxes on the wealthy and clear targets to improve public services.
The Budget is set to be unveiled on 26 November, with economists warning that higher borrowing and sluggish growth necessitate tax rises or a revision of borrowing rules.
