U. K. Treasury Chief Rachel Reeves has acknowledged that a recent tax increase on businesses could result in wages rising less than expected. This follows a budget announcement where she raised taxes by around £40 billion ($52 billion) to fix what she claims is a gap in public finances and fund public services. The biggest change is a 40% increase in employer national insurance contributions, to be paid from a lower salary threshold. Reeves admitted that businesses might pass this cost to employees by keeping wage hikes smaller. A respected economic think tank, the Institute for Fiscal Studies (IFS), warned that this could lead to the tax raising more than anticipated, potentially requiring further tax hikes down the line.

Reeves' admission comes after the Labour Party’s landslide election win in July, promising to boost the economy and restore public services. However, their budget measures were more extensive than what was hinted during the election campaign. Although Labour vowed not to hike taxes on "working people, " the Conservative Party argues that the employer tax hike breaks this promise and could lead to lower wages.

The IFS also flagged concerns about public spending projections, noting that increasing spending by 4. 3% this year and 2. 6% next year might slow down to just 1. 3% per year from 2026, which could be challenging.

Treasury Boss: Tax Hike Might Hurt Wages

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