Nadhim Zahawi grilled on National Insurance rise
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National Insurance is currently paid at 12.5 percent of a worker’s income, and high earners will pay only two percent on salaries above a £50,000 threshold. Under present rules, those who have exceeded the state pension age will not have to pay the levy at all. National Insurance contributions are paid on a person’s earnings, and employers are able to collect this directly, and then forward the sum on to HM Revenue and Customs (HMRC). National Insurance contributions are paid into a fund which covers the state pension, maternity leave, and other forms of social support. However, Mr Johnson’s Government is expected to increase National Insurance payments within the next week, according to recent reports. This is due to a challenged social care sector which many believe needs a fresh injection of cash to get it back on its feet.
But many are taking issue with the idea of a National Insurance hike, including Phillip Hammond, who once held the country’s purse strings. Mr Hammond served as Chancellor under then-prime Minister Theresa May, between 2016 and 2019. He was well known for suggesting the Government may begin a reduction in measures of austerity.
Mr Hammond communicated his opposition to the idea of a National Insurance tax hike, joining a number of senior Conservative politicians who oppose a rise to the levy to fund social care. This includes former Conservative leader Iain Duncan Smith, as well as former prime minister John Major.
Speaking to Times Radio, Mr Hammond said: “An increase in National Insurance contributions is asking young working people, some of whom will never inherit the property, to subsidise older people who’ve accumulated wealth during their lifetime and have a property, and, on any basis, that has got to be wrong.
“I think if the Government were to go ahead with the proposed increase in national insurance contributions, breaking a manifesto commitment in order to underwrite the care costs of older people with homes, I think that would provoke a very significant backlash. I think it would cause the Government – the Conservative Party – significant damage.”
National Insurance: Boris Johnson warned hike could create ‘significant backlash’ (Image: Getty)
Mr Hammond added that an expansion of the state to protect private assets was the “wrong thing to do”, particularly as he believes it asks “poor people to subsidise rich people”.
Recent reports on National Insurance and the potential for a hike surface in both The Times and The Daily Telegraph, with both suggesting plans for an increase could be put forward as soon as next week. This is when Parliament makes a return from its summer recess, with MPs back in the Commons.
According to The Telegraph, Mr Johnson is to float the idea of raising payments by one percent next April. If this plan were to go ahead, it would coincide with annual changes due to take place to National Insurance threshold bands.
While The Times suggested Health Secretary Sajid Javid could be pushing for a two percent increase, with current Chancellor Rishi Sunak pushing back on any increase of more than one percent.
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An increase to National Insurance, however, could spark backlash for an entirely different reason – as it relates to the Tory party itself. In the current Government’s 2019 manifesto, it was promised there would be no hike to the levy undertaken, and many people voted based on this vow.
However, some could posit that if change to National Insurance does take place, it could be a result of the unprecedented circumstances of the last year and a half due to COVID-19, with extra pressures put on social care and health.
A hike to National Insurance, though, has not yet been announced, with Justice Secretary Robert Buckland recently telling Sky News no decisions had been made on the matter as of yet.
He said: “We know the challenge, the work is going on, and I’m sure that we’ll hear the outcomes very soon. No final decisions have been made. We will work as quickly as possible in order to get that certainty that, I think, so many people have been looking for so long.”
National Insurance: Mr Hammond is now a member of the House of Lords (Image: Getty)
There are fears, however, that Mr Johnson could spread the burden of National Insurance increases by forcing pensioners to pay National Insurance as well. This would be an unprecedented move, and the mere idea has sparked outrage amongst many older people.
Steven Cameron, pensions director at Aegon, said: “Previous speculation suggested the favoured approach was an increase in National Insurance. While in many ways just another form of ‘tax’ on income, it is associated with paying for state pensions and the NHS, and social care could be ‘added’ to that list. Both employees and employers pay National Insurance and applying the increase to both would spread the costs widely.
“However, the different treatment of the self-employed would raise questions around fairness. More significantly, individuals currently don’t pay National Insurance on earnings after state pension age, and this would look hard to justify on intergenerational fairness grounds.
“The older people are, the sooner they may benefit personally from the new deal, so there is an argument for levying increases initially only on those above a certain age.
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“Governments of nations within the UK have devolved powers to make their own social care arrangements and to set income tax rates and bands, which also need factored in, adding another layer of complexity.
“The different approach to social care in Scotland, for example, would raise questions around the fairness of a UK wide hike in National Insurance.”
While Shaun Moore, tax and financial planning expert at Quilter, posited that removing the National Insurance exemption for pensioners would “at least make it seem that everyone is in the same boat”.
What many people are united on, however, is the fact the UK needs a better system of social care which is fairly funded, with a split between the state and individuals. What conclusion will be reached on the matter, though, is a different story altogether.