Labour has today warned that the future of the state pension is
on the ballot paper at the next election, as a new dossier
exposes the risks to pensioners from the Tories’ £46 billion
unfunded tax plan.
Last week, the Chancellor announced the Conservatives’
£46 billion unfunded plan to abolish National Insurance
Contributions (NICs). Since then, minister after minister has
refused to say how it will be funded or the impact it will have
on the state pension.
Entitlement to the state pension is based on people’s
contributions during their working life, via their NICs. Under
the Tories’ plan, employees will not make contributions, creating
uncertainty about this entitlement and blowing a £46 billion hole
in funding earmarked for the state pension and NHS.
A new dossier published by Labour reveals the serious threat of
Tories’ plan on the future of the state pension that could leave
working people and pensioners worse off.
New analysis from the Labour Party reveals that scrapping NICs
could:
- Leave a £35 billion black hole in the funding of the state
pension
- Sever the link between contributions and pension entitlement,
creating huge uncertainty for working people about when and how
they will be eligible for their pension
- Mean the average pensioner facing a £800 tax hike, more than
wiping out gains from the triple lock over the last 14 years,
through the merge of income tax and NICs as hinted at by the
Chancellor.
Labour has urged Tory ministers to come clean about their plans
by setting out the ten questions that need to be answered,
including how the £46 billion plan will be paid for and what
changes will be made to eligibility.
, Labour’s Shadow
Paymaster General, said:
“The future of the state pension is on the ballot paper at the
next general election.
“The Tories’ £46 billion unfunded tax plan to abolish national
insurance can only lead to higher borrowing, higher taxes on
pensioners or the end of the state pension as we know it.
“Ministers need to come clean with the British people and start
answering these basic questions.”
Ends
Notes:
A full copy of the dossier is attached.
Labour’s new analysis of Tory plans
Labour Party analysis reveals that replacing NICs revenue with a
higher basic and higher rate of income tax would mean rates of
income tax going up by 6.5%. That means for a retired pensioner
with an income of £25,000 from a mix of private and state pension
paying an extra 6.5% on their income above the £12,750 personal
allowance. This would mean paying over £800 (£808) more in income
tax.
As below HMRC’s ready reckoner suggests removing NICs for
employees and the self-employed would cost around £46 billion.
HMRC’s ready reckoner suggests that in 2024/25:
- A 1%-point increase in the basic rate of income tax would
raise around £6 billion
- A 1%-point increase in the higher rate of income tax would
raise around £1.25 billion
- A 1%-point increase in both the basic and higher rates of
income tax would raise around £7.25 billion.
The state pension has increased by approximately £780 more than
if it had gone up by earnings since 2010 – these gains will be
wiped out under Tory plans.
Unfunded NICs plan
has said he wants to abolish
national insurance contributions (NICs). In an email to Tory
members, he said: “I’d like to end the unfairness where people in
work are paying tax twice on their earnings”. Treasury Minister
confirmed this in an LBC
interview on 6 March 2024.
After Hunt’s changes main rate NICs will be 8%. Self-employed
NICs will be 6%. The Treasury’s policy costings table (Table 5.1)
reveals that a 2p cut to main rate employee NICs costs £9.99bn in
2028/29, and a 2p cut in main rate self-employed NICs costs
£760m.
In addition, according to HMRC, it costs £1.45bn to cut the
employee additional rate by 1p, and £270m to cut the
self-employed additional rate by 1p.
In total wants to deliver £46bn of
unfunded tax cuts:
- £39.96bn to abolish employee NICs main rate, going from 8p to
0p
- £2.28 to abolish self-employed NICs, going from a 6p rate to
0p
- £2.9bn to abolish employee NICs additional rate, going from
2p to 0p
- £0.54bn to abolish self-employed NICs additional rate, going
from 2p to 0p.
That is £1bn more than the £45bn of unfunded tax cuts in the
disastrous Truss mini-budget.
Impact of threshold freezes
Resolution Foundation analysis shows that, by 2027-28, the
average taxpaying pensioner will be around £1,000 a year worse
off from income tax threshold freezes.
The National Insurance Fund
Around 80% of NICs receipts are earmarked for the National
Insurance Fund (96% of which pays for pensions) and 20% is
earmarked for the NHS.
Abolishing NICs abolished would put around £35bn of funding for
the state pension at risk.
