Minister refuses to class small business owners as ‘working people’

A cabinet minister has refused to say whether a small business owner earning £13,000 a year is a “working person” who should be protected from tax rises in Rachel Reeves’s first budget.

Bridget Phillipson, the education secretary, said Labour’s definition of a working person was someone “whose main income arises from the fact that they go out to work every day”.

She said this would apply to cabinet ministers like her, who would “not see higher taxes” when they looked at their payslips after the budget on Wednesday.

Asked if the same protections applied to small business owners who earn their income from profits, she refused to give any assurances, describing the question as “hypothetical”.

“We can go through a range of different hypotheticals about who may or may not be captured by tax measures that may or may not happen in the budget,” she told the BBC’s Sunday with Laura Kuenssberg programme.

“I know it’s frustrating ahead of the budget that I can talk about some areas, but not all of it. When Rachel is sat here next weekend you can ask her about the measures that she’s announced.”

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Speaking to Times Radio, Phillipson said she was not “comfortable” with “the levels of taxation working people have faced” during the Conservative government.

She said: “I would like [working people] to be paying less. I’m also not comfortable about the fact that the Conservatives left us a £22 billion black hole this year. That’s led to some really, really tough choices that none of us wanted to make.”

Reeves is widely expected to raise the rate of employers’ national insurance contributions by between 1 and 2 per cent in the budget, a move that would particularly hit the owners of small businesses.

She is also expected to make a ­“significant” cut to the earnings ­threshold at which employers start making national insurance contributions, which at present is £9,100.

Labour insists that this does not breach its manifesto pledge not to raise income tax, VAT or national insurance on “working people”.

But estimates by the Federation of Small Businesses claim these changes would increase the cost of hiring a new employee on the average salary by £600 per worker, and £500 for someone on the national living wage of £11.44 an hour.

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The Treasury plans to cushion smaller businesses by raising their allowances. At the moment, employers with bills for national insurance contributions of £100,000 or less receive an allowance on the first £5,000 (the employers’ equivalent to the personal tax allowance), roughly the equivalent of paying four people on the national living wage. This is expected to rise to £6,000, helping about a million small employers at a cost of £1 billion.

Mervyn King, the former Bank of England governor, warned that any increases in employer national insurance would ultimately be borne by individuals and said the debate around not putting up taxes on working people was a “terrible illusion”.

“Taxes are paid by people, they’re not paid by companies or institutions, ultimately, they fall on the amount that people can spend, and you can only raise significant amounts of money by raising taxes on most people, however you care to define that, but most people will have to pay higher taxes,” he told Sunday Morning with Trevor Phillips on Sky News.

“And if they, instead of unwinding the cuts in employees’ national insurance contributions, put up employers’ national insurance contributions, that will make it less likely that companies will accede to wage demands, they will press down on that, they will probably be less enthusiastic about creating new jobs.

“Ultimately, the impact of these higher taxes has to be on the consumption of most people, however you care to define that group.”

King said the government had been “very unwise to box itself in with its pledge not to raise employee national insurance, VAT and income tax during the election”.

“I think the previous government was irresponsible to cut national insurance contributions when that was only remotely feasible, given unrealistic projections for public spending.

“And I think the opposition didn’t need to make a commitment not to reverse that. And honestly, I think that would be much better now just to say to people, this is where we are, be completely straight with people and say: ‘Yeah, we made that pledge in the heat of an electoral battle, it was a mistake, we regret it, and we’re going to unwind that.’

“We’re going to put national insurance contributions back to where they were, because without that, we won’t have the money to support the NHS and other public services.”

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