Taxpayers face a bill of more than £50 million a year to cover the cost of the National Insurance raid on train companies.
Rail firms are expected to be able to charge the extra tax back to the Government, reducing the amount of money that the Treasury will raise.
The Tories launch a last-ditch bid in Parliament on Tuesday to stop the “jobs tax”, accusing Labour of waging a “war on business”.
A network of 16 private train companies are paid a set amount by the Government to deliver most of the rail services across England.
They do not receive the profits made from running the routes, but as a result are allowed to bill unexpected costs to the taxpayer.
The train companies employ about 57,000 staff on an average basic salary of almost £42,000, according to the Office of Road and Rail.
From April 2025 the extra National Insurance on a £42,000 salary will be about £1,000. Industry sources said the companies will almost certainly be able to bill the cost to the taxpayer as an “allowable expense” outside of their contracts.
There are warnings that businesses could have to cut up to 130,000 jobs in response to the Budget, while the public sector is protected.
Economists have said private sector firms are also expected to lower salary increases for their staff and to put up prices to recoup the £18 billion a year cost.
However, Rachel Reeves, the Chancellor, has set aside £6 billion a year to compensate public bodies, meaning public sector workers will be shielded from the impact of the rise.
That is expected to cover the effect of the increase for rail companies that are already owned by the public, which include Transport for London.
Labour has pledged to renationalise the railways by the end of 2030 despite admitting that the move could add £15 billion to the national debt.
MPs prepare to vote for the first time on Tuesday on the legislation that would enact the National Insurance increase.
The Tories have tabled an amendment to strike down the move on the basis that it is a “clear breach” of Labour’s manifesto pledge not to put up the tax.
Andrew Griffith, the shadow business secretary, accused Ms Reeves of raiding firms to “fund largesse for an unreformed public sector”.
Writing for The Telegraph, he said: “What Labour do not grasp is that it is employees, consumers and society who are the collateral damage in their war on business.
“They must change course. Otherwise, this is the beginning, not the end, of Britain’s economic malaise.”
Mel Stride, the shadow chancellor, added: “Broken promises have consequences. This National Insurance increase means lower wages, fewer jobs, the closure of businesses and lower growth.
“Labour MPs now have the opportunity to do the right thing and stick with their manifesto pledge by voting against this bill.
“If they fail to do so, they will once again confirm to the public that Labour is a party of broken promises that does not understand how to grow the economy and is not on the side of business.”
Labour MPs will be on a strict three-line whip for the vote and are expected to overwhelmingly back the increase as a result.
A Treasury spokesman said: “With our public services crumbling and an inherited £22 billion fiscal black hole, we had to make difficult choices to fix the foundations of the country and restore desperately needed economic stability.
“By doing this, more than half of employers will either see a cut or no change in their National Insurance bills, there will be £22.6 billion more for the NHS and workers’ payslips will be protected from higher tax.
“All train operating company costs will be considered in the usual way, in annual business planning discussions with the Department for Transport.”
Tax raid to drag out Britain’s economic malaise
By Andrew Griffith
Labour has always been the anti-business party, and in just five months they have reminded everyone why.
Taxes: raised to record levels. Business confidence: crushed. Inflation: already going up. All while demonstrating that the promises they made to get elected were not worth the paper they were printed on.
Today, we will vote in Parliament on the Bill to implement Labour’s “jobs tax”, £25 billion to be extracted via National Insurance hikes to fund largesse for an unreformed public sector.
What Labour do not grasp is that it is employees, consumers and society who are the collateral damage in their war on business. They must change course.
Otherwise this is the beginning, not the end, of Britain’s economic malaise. This manifesto-breaking policy will make it more expensive to hire staff.
In doing so, it will depress wages, limit job opportunities and cost jobs.
As a direct result of the jobs tax, businesses will see a double-digit percentage rise in employment costs.
For example, it will cost £1,100 more a year for a business employing a student working weekend shifts.
That is simply unaffordable to many small businesses like pubs, cafes and shops – the backbone of our economy. Sectors with lots of part-time workers such as hospitality, retail and care workers will be disproportionally hit.
By the Government’s own admission, it is a regressive tax hitting the lowest paid the hardest.
That closed pub or shop on the high street? The price of the “jobs tax” meaning they can no longer make ends meet.
Your child or grandchild unable to get a starter job or part-time work while studying? The impact of higher NI rates and the income threshold at which they bite being lowered.
Of businesses impacted, 85 per cent say they will have to reduce headcount or staff hours.
Any economist worthy of the title would know that taxing jobs is one of the most destructive ways to raise revenues.
It reduces employment, moves people off payrolls onto welfare, and creates a two-tier economy – weighing down the most productive parts of the economy to support the least productive.
Business confidence has tumbled
But Labour dogmatically ploughs on, seemingly oblivious to the facts at hand amid a growing chorus of opposition. Their summer of “trash talking” the economy, a Budget which led to the cost of Government borrowing increasing, inflation ticking up.
Predictably, the Institute of Directors revealed this week that business confidence has tumbled to its lowest level since records began, barring only the period of a global pandemic.
And the jobs tax is just one of a three-pronged assault. In keeping with the economically illiterate approach to businesses and breaking yet another promise, Labour’s Inheritance Tax raid will also have a profound effect on family businesses.
Their changes to business property relief will bring a small chain of family butchers, bakers or even candle-stick makers into paying the death tax for the first time ever.
Many will not be able to find the funds to afford an unexpected tax bill running into hundreds of thousands of pounds driving them into sale or closure. Just like the jobs tax, it will syphon money away from wages, investment and the profits which fuel growth in the UK.
To top it off, Labour barrel ahead with their union inspired Employment Rights Bill. It will drown businesses in a tidal wave of red tape, embolden trade unions, encourage strikes, and penalise those who dare to venture out and set up an enterprise. In short – it is a job killer.
During the election, we heard ad nauseam how Keir Starmer’s number one priority was to get Britain’s economic growth to be the fastest in the G7. That was plausible then given that he inherited an economy already growing at the fastest rate in the G7.
But actions speak louder than words and since Labour has been in charge, the UK has tumbled down the growth table. Reportedly, after just 150 days in office instead of junking his failing Chancellor, he is instead junking this flagship pledge.
What should happen now? If they are serious about a “reset” the government should talk positively about their economic inheritance, should delay at least the NI threshold changes to give businesses more time to adjust and ditch the rushed Employment Bill which has been savaged by the Government’s own regulation-regulator as not fit for purpose.
Working with businesses is key to any government. Because it is private enterprise – not the state – which creates economic growth. If the first 14 weeks have been anything to go by, I fear it is a lesson Starmer is yet to learn.
Andrew Griffith is the shadow business secretary
