He said reversing Jeremy Hunt’s pre-election 2p cut to employee national insurance contributions would allow Ms Reeves to go back on her hike on employer national insurance bills, “which is affecting unexpected areas like charities”.
“I think it would have been better to have said in the Budget, ‘look the previous government was irresponsible in cutting employee national insurance contributions, but let's be frank, we were pretty irresponsible in saying we wouldn't reverse it’,” he said.
But Lord King warned that reversing the cut to national insurance contributions would still not be enough, adding that “in the long run, to raise enough money, I think we will have to raise the basic rate of income tax”.
Asked whether Ms Reeves should also rethink her fiscal rules, which bar her from using borrowing to fund day-to-day spending and mean debt must be falling as a share of the overall economy, Lord King said the chancellor should give herself room to spend more.
Mervyn King says there is ‘no harm’ in raising the basic rate of income tax as he urged Rachel Reeves to act over ‘silly things’ said before the election.
