Rachel Reeves knows she has nowhere else to turn – brace yourselves
It's two weeks before the Budget and finally Labour is starting to drop heavy hints about precisely what pain those "broad-shouldered" martyrs will be forced to bear for the good of public sector pay rises .
Over the past few days, Sir Keir Starmer and Rachel Reeves have been incessantly repeating their promise not to raise taxes on "working people". Labour's manifesto also pledged not to raise the rates of income tax, National Insurance or VAT.
But it seems increasingly certain that workers, who delivered Labour an historic parliamentary majority just three months ago, will end up being stung.
Things were looking bad enough when Reeves entered Number 11 and immediately began doing her best impression of a builder, sucking in her teeth after inspecting the bodged job of the previous bloke.
But it now appears the infamous £22bn "black hole" in the public finances supposedly left by the Conservatives, has grown to £40bn, according to reports.
There are rumours, yet to be dispelled, that employers could face the bulk of tax rises via changes to the National Insurance they pay on wages. If the main rate, currently 13.8pc of salary, was raised by 1 percentage point, it would bring in an extra £8.5bn a year.
That could, quite reasonably, be seen as a breach of Labour's manifesto. But changing the scope, rather than the rate, of National Insurance could (just about) avoid the charge of a broken promise.
One option being whispered around Westminster is that employers be forced to pay National Insurance on the money contributed to staff pensions.
It is reckoned this could raise as much as £17bn – serious money, unlike the peanuts Labour's ideologically-driven winter fuel payment cuts and private school raid will generate.
The problem is, as must be obvious even to Reeves and Starmer, that a big tax increase on businesses like this, is eventually paid by their staff.
Under "automatic enrolment" rules, all companies must pay a minimum of 3pc into employee pensions. These historic reforms were introduced to stave off a retirement crisis that still threatens to result in millions of people retiring on a diet of baked beans.
Lots of employers pay more than the legal minimum in a bid to retain staff. Were their costs to rise, they will cut company benefits, lower wages or a deadly mix of both.
In short, if you raise taxes on companies (and National Insurance is effectively a tax, whatever the Treasury says) you are raising taxes on employees – the working people Labour is so keen to protect.
Nearly half of employers who pay more into company pensions than they have to say they would reduce contributions if National Insurance was increased, according to a survey of Britain's biggest employers conducted by trade the Association of British Insurers.
More than 60pc said a tax rise would make them less likely to increase contributions in the future.
Even more damning is a 2021 report from the Office for Budget Responsibility that predicted 80pc of any increase to employers' National Insurance would be "passed through to workers via lower nominal wages".
Neil Insull, a partner at accountants Blick Rothenberg, said because the Chancellor won't increase corporation tax, she's left with increasing National Insurance as the "one realistic difficult decision for business".
He warns doing so would run counter to Labour's proposals to boost workers' rights and get people back to work, if employers end up freezing new hires, cutting pay and pensions as a result.
Do not believe Labour when it says it will protect working people from tax rises. The Chancellor knows she has nowhere else to turn. Brace yourselves.
