National Insurance is only tax hike choice left to Chancellor

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The Independent Online

A hike in National Insurance is the only option left open to the Chancellor to raise the money he needs to deliver improvements in the NHS, financial experts believe.

Gordon Brown and the Prime Minister has dropped a series of hints that next month's Budget will contain plans for higher or new taxes.

But tax experts believe the Treasury is running out of options. According to a report out today from the accountants BDO Stoy Hayward, Mr Brown has already raised £20bn since 1997 through so-called "stealth taxes" on businesses.

"The scope for raising revenue by this means is becoming increasingly limited," said Adam Frais, a tax partner at the firm. "National Insurance – the famous hidden tax – seems the most likely option open to the Chancellor."

Although Labour made a manifesto pledge not to raise the basic and top rates of income tax it was silent on National Insurance contributions.

These are paid both by the employer at a fixed rate and by employees on earnings up to about £30,000. The self-employed pay a lower rate.

BDO Stoy Hayward said the Chancellor could raise the rate paid by entrepreneurs, hike the rate paid by business, or raise or even abolish the upper earnings limit.

"Any of these measures could raise the significant amount of revenue required to finance hefty spending plans," Mr Frais said.

According to calculations by the Institute for Fiscal Studies abolition of the upper earnings limit would raise £5.9bn and drag all high-rate taxpayers into the NIC net.

Raising the limit, to £34,500, would be less headline-grabbing but it would only raise £1bn and would not affect earnings of the extremely well-off.

"If they were to raise it they would end hitting the people that electorally they might want to avoid – Middle England in other words," Mr Frais said.

Speculation that Mr Brown might be looking at changes to VAT rose last week after the International Monetary Fund raised the idea of extending it to goods that are currently exempt.

Labour rules out extending VAT to children's clothes, books, newspapers and public transport but could still raise the general rate, currently at 17.5 per cent.