Abolition of ‘unfair’ national insurance ‘won’t happen soon’
Labour says chancellor’s plans to abolish NI tax ‘irresponsible’
Jeremy Hunt has conceded the newly stated Conservative aim to end national insurance altogether will not happen “any time soon”, despite leaving the door open for more pre-election giveaways.
The Chancellor spent around £10 billion on the 2p cut to national insurance in his spring Budget, although experts have said the UK tax burden is still set to reach a record high.
During broadcast interviews yesterday, Mr Hunt said he wants to “end the unfairness” of the system but that eliminating contributions altogether would be a “huge thing to do”.
The Tory Government has said its long-term aim is to eliminate what it calls a “double tax on work” in the form of national insurance and income tax – a move branded reckless by its political opponents.
But Mr Hunt told Times Radio: “That’s a huge job… I don’t think it’s realistic to say that’s going to happen any time soon.”
Speaking to Sky News, he suggested the Government could potentially “merge” national insurance and income tax.
A number of differences between the two mean it is unclear how such a move would work in practice. For example, pensioners pay income tax but not national insurance contributions (NICs). It could also potentially see income tax increase as a way of making up the shortfall from abolishing NICs.
According to the independent Office for Budget Responsibility, income tax raised around £251 billion in 2022-23, while national insurance brought in around £177bn.
Shadow chancellor Rachel Reeves, however, said talk of abolishing NICs altogether was “irresponsible”. Ms Reeves told ITV’s Good Morning Britain: “You get rid of national insurance altogether, that’s a cost of £46 billion every single year. And I think it is really irresponsible to start making promises without the faintest idea of where the money’s going to come from.”
It comes as expert Budget analysis overnight suggested this Parliament is the first in modern history to see a drop in living standards, with real household disposable income set to fall by 0.9 per cent.
Asked about fiscal drag, whereby people are pulled into higher tax bands while thresholds are frozen, Mr Hunt said he is “not pretending” to have “brought all those taxes down”.
He said the revenue raised is needed to pay for measures like the furlough scheme during the pandemic and support for households with energy bills amid the cost-ofliving crisis.
“I’m not pretending that I brought all those taxes down in one go. We can’t afford to do that. It wouldn’t be responsible to do that,” Mr Hunt told Times Radio.
“But do I want to carry on bringing them down, as I did yesterday, as I did in the autumn statement? Yes, I do.”
Torsten Bell, of the Resolution Foundation, said Wednesday’s tax cuts relied on “the prospect of a sour £19 billion of post-election tax rises”.