Chancellor set to hike employers National Insurance to raise £20bn

The chancellor is set to increase the amount employers in the UK pay in National Insurance to raise £20bn for public services at the Budget.

Rachel Reeves is also expected to lower the threshold for when employers start paying the tax, but is not likely to introduce the levy to employer pensions contributions.

Currently, employers pay national insurance of 13.8% on a worker's earnings above £175 per week.

The move is thought to be the single largest revenue raiser of next week’s Budget, but other tax rises are also expected.

National Insurance contributions are the UK’s second-largest revenue stream behind income tax. It is paid by workers and the self-employed on earnings and profits, and by employers on top of the wages they pay out.

Speculation has been growing about the tax rises Labour will announce in its first Budget in almost 15 years, with the chancellor claiming there is a £22bn "hole" in the public finances.

Last week, she signalled businesses will face an increase in National Insurance, when she said Labour's election pledge not to increase contributions on "working people" related to the employee element, as opposed to the sum paid by employers.

The BBC understands Reeves is expected to confirm this when she delivers her Budget on 30 October.

Any changes to the tax can be introduced quickly, within weeks of a Budget, through digitalised payroll systems, meaning revenues can also be generated at speed.

It has been estimated increasing the rate of National Insurance paid by employers by one percentage point to 14.8%, for example, could raise as much as £8.5bn per year in the short term.

However, with Reeves also expected to change the threshold businesses start paying the levy, such an estimate would likely change.