National Insurance ‘will not be increased’ says Kwarteng
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The Government is expected to announce a manifesto-breaking National Insurance increase for 25 million workers next week, to fund social care and reduce NHS waiting lists. Experts say Boris Johnson may spread the burden by forcing pensioners to pay National Insurance as well, in a move that would cause outrage.
The Government is desperately looking at ways of solving the care crisis, and raise funds to reduce the numbers waiting for NHS treatment, now at a record 5.45 million.
This morning it leaked a plan to increase National Insurance (NI) by either one or 1.25 percent for everybody of working age.
This will spark fury because the Conservative Party ruled out raising the rate of National Insurance in its 2019 election manifesto.
Sir Andrew Dilnot, who led a cross-party commission on care funding, has previously suggested making people over retirement age pay NI towards the annual £10billion cost of overhauling the UK’s care system.
Experts say Boris Johnson may now take that option in a move that could hit millions of pensioners.
Pensioners could face a new tax (Image: Getty)
Currently, people stop paying National Insurance when they reach State Pension age, unless they are self-employed and pay Class 4 contributions.
Hargreaves Lansdown’s personal finance analyst Sarah Coles said by choosing to increase National Insurance, the Government is placing the burden of paying for social care squarely on the shoulders of younger people.
This may prove politically controversial and this could force the Government to go a step further. “It could be the precursor to making National Insurance payable on earned income over State Pension age too.”
Steven Cameron, pensions director at insurer Aegon, said charging workers more National Insurance while pensioners do not pay “would look hard to justify on intergenerational fairness grounds”.
Shaun Moore, tax and financial planning expert at Quilter, agreed that this would appear unfair, hitting those on lower incomes and the young while wealthier pensioners escape the extra tax charge.
Removing the National Insurance exemption for pensioners “would at least make it seem that everyone is in the same boat”, Moore added.
One option is to charge NI on those who continue to work after State Pension age. This could see them paying an extra £1,252 a year.
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Younger families could struggle if National Insurance is increased (Image: Getty)
A more drastic – but less likely – move would see people paying NI on their retirement income too, including money from pensions.
The Government will struggle to justify charging workers more to pay for social care. Critics say the elderly should use some of their property wealth to fund care costs.
As part of the social care reforms, the Government may promise to cap the amount an individual will ever pay towards social care, possibly at between £60,000 and £80,000.
The aim is to protect people from having to sell their homes to meet care bills. Currently, local authorities will only pay the full cost of nursing home care once the person’s assets have fallen below £14,250, and this includes the value of their home.