If the government’s proposal to abolish National Insurance becomes reality, future generations of pensioners will be left out to dry.
Chancellor Rishi Sunak teased the idea of scrapping the levy in an interview with the Sunday Times over the weekend.
He claimed that a Conservative victory at the next general election would make “significant progress” on abolishing National Insurance.
This is part of the government’s wider desire to abolish the ‘double taxation’ of work that is imposed on hard-working Britons through both income tax and national insurance.
This sounds appealing on paper, but the Conservatives will be putting the future of the state pension and the retirements of millions at risk with a cheap electoral strategy.
National Insurance records are vital to accessing the benefit system and entitlement to the full state pension.
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Future pensioners will suffer if National Insurance is abolished, writes Patrick O’Donnell
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Workers will need to have paid contributions for at least 10 years to access the new state pension, but those who have paid contributions for 35 years will receive the full amount.
The money raised from donations is set aside in the National Insurance Fund and used to pay benefits and pay for the NHS.
National Insurance contributions from workers and businesses generated £178bn in the tax year ending March 2023, according to the House of Commons Library.
This makes it the second largest tax in the country after income tax in terms of total revenue.
That year, £117 billion of the National Insurance contributions paid was spent on benefits and related costs.
Significantly, the bulk of the funding went towards paying the national pension, at £110bn.
Labor says scrapping national insurance contributions for employees will cost £46bn.
This is part of the levy that the Prime Minister reportedly wants to abolish, meaning a significant portion of the National Pension funding will no longer be available.
This comes amid calls for a review of the triple payment limit and concerns over how the national pension will be paid in the future.
The government can replenish the National Insurance Fund, but it will increase public borrowing at a time when it desperately needs to balance the books.
If the Conservatives were to abolish this particular tax, the entire current benefit system would need to be overhauled.
Eliminating employee and self-employed contributions means there will need to be another way to record how much someone has contributed to tax over the course of their career.
Latest developments:
Rishi Sunak has suggested the tax could be scrapped if the Conservatives remain in power.
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Even if we succeed in abolishing National Insurance, the rate of income tax paid by workers is likely to rise to cover its costs.
Higher income taxes also mean pensioners will have to pay more to fund a less prosperous retirement for their children and grandchildren.
Britain’s tax burden is at its highest since the Second World War as the cost of living crisis continues.
Our people desperately need a grown-up tax policy that addresses this reality and doesn’t sweep our country’s problems under the rug.
