Jeremy Hunt signals end of National Insurance

Jeremy Hunt
Jeremy Hunt criticised 'double taxation' by income tax and National Insurance - Tejas Sandhu/Shutterstock
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Jeremy Hunt has revealed an ambition to abolish National Insurance for workers as a centrepiece of the Conservative re-election bid.

In his Budget speech on Wednesday, the Chancellor criticised “double taxation” by income tax and NI, vowing to “end this unfairness”.

He lowered the rate of employee NI from 10 per cent to eight per cent from next month, benefiting 27 million workers and matching a similar 2p drop in the autumn.

Downing Street and Treasury sources confirmed that the aim was to get rid of the employee element of NI entirely, suggesting it could be a key manifesto pledge.

No schedule for the radical ambition was given, and it would cost around £50 billion – drawing scepticism from policy experts over whether it would be realised.

But it appeared to open up an immediate dividing line with Labour. A Labour spokesman declined to match the goal, saying: “We will comment on policy, not weird commitments designed to give a bit of a lift to a Budget which does seem to have been a bit of a damp squib for some of his backbenchers.”

On Wednesday night, Rishi Sunak confirmed that abolishing NI was “our ambition long term”. Speaking at a dinner to mark the 50th anniversary of the Centre for Policy Studies, he said the NI cuts to date were “a personal tax cut worth £20 billion”.

He said: “Our country faces a profound choice. If the Opposition win this year, they will use the shocks of the last few years, or the need to transition to net zero, to justify massively bigger government. It means more influence for vested interests and trade unions.”

Invoking Margaret Thatcher, he added: “Mrs T knew that hard work should be rewarded, and any extra penny our country earns is better spent by businesses and individuals than by the state. All else equal, lower taxes are better for growth.”

The NI cut was the most eye-catching element of a Budget that saw Mr Hunt focus his limited spare money from the tight public finances on tax cuts.

The salary point at which people no longer receive child benefit was raised to £60,000 in a boost to half a million families when tweaks to how it is withdrawn are taken into account.

But non-dom status was abolished, the oil and gas windfall tax extended, a new vape tax introduced and tax breaks for holiday lets scrapped to raise money for the tax cuts.

Overall, the Budget cut the tax burden by £13.5 billion this year, meaning it will no longer reach the record high forecast in November. But it remains on course to hit 37.1 per cent of GDP in 2028 – its highest point since 1948.

The lack of new financial support for pensioners received criticism. Unlike reducing workers’ NI, an income tax cut would have helped them.

In interviews on Wednesday night, Mr Hunt repeatedly declined to promise that a reduction in income tax would come before the next election, despite Mr Sunak pledging as much at various points in recent years.

He also moved to play down speculation that a May election would be called, saying the “working assumption” was that it would be held in the autumn but adding that it was Mr Sunak’s decision.

The Chancellor decided against reducing public spending plans for the years after the election after critics warned against deeper spending cuts to unprotected departments to fund lower taxes.

By delaying a full spending review to spell out where cuts to unprotected departments would come, he has tied Labour’s hands, with Sir Keir Starmer, the Labour leader, forced to make those difficult decisions should he win the election.

Lucia Guo, Jeremy Hunt's wife, and their son Jack leave Downing Street to watch him deliver his Budget in the Commons
Lucia Guo, Jeremy Hunt's wife, and their son Jack leave Downing Street to watch him deliver his Budget in the Commons - Stefan Rousseau/PA Wire

There were some positive financial signs, with the Office of Budget Responsibility (OBR) saying the UK was now out of recession after the economy shrank in the second half of last year.

Inflation is also expected to halve to below the Bank of England’s two per cent target within months, and is expected to remain there for the rest of the decade.

But living standards were still found to have suffered their biggest drop since records began.

The OBR said personal tax cuts announced last autumn and on Wednesday only reversed around half the total extra tax revenue raised from the freezing of thresholds until 2028.

Predicted rises in council tax are also expected to wipe out any benefit felt by households from the cut to NI announced in the Budget, figures suggest.

Forecasts for net immigration also increased, while the employment rate is estimated to fall in the coming years despite Mr Hunt’s efforts to get people off benefits and into work.

Near the end of his Budget speech, the Chancellor said: “The way we tax people’s income is particularly unfair. If you get your income from having a job, you pay two types of tax – National Insurance Contributions and income tax.

“If you get it from other sources, you only pay one. This double taxation of work is unfair. The result is a complicated system that penalises work instead of encouraging it.”

He added later that “our long-term ambition is to end this unfairness” and said: “When it is responsible, when it can be achieved without increasing borrowing and when it can be delivered without compromising high-quality public services, we will continue to cut National Insurance as we have done today so we truly make work pay.”

The position is likely to feature prominently in the coming election campaign, according to government insiders familiar with Budget planning.

The phrase “double taxation” performed well in polling, according to one Downing Street source, with the new positioning seen as helping re-establish Tory tax-cutting credibility.

Employee NI was reduced from 12 per cent to 10 per cent in last year’s Autumn Statement and then lowered to eight per cent on Wednesday. Similar reductions in the NI paid by the self-employed have been seen.

Treasury estimates suggest that stopping all workers paying NI would cost around £50 billion, and potentially benefit the average worker by around £2,000 a year. The new position does not include ending the NI contributions paid by employers.

Mr Hunt and other ministers declined to give any detail on how or when the ambition would be delivered. Mr Sunak previously raised NI when chancellor.

Some Tory MPs demanded specifics, with John Stevenson, who chairs the Northern Research Group, calling for a commitment to abolish NI in the election manifesto.

Others bemoaned the lack of income tax cuts, with Suella Braverman, the former home secretary, saying: “I do regret income tax was not chosen as the tax to cut, because pensioners have lost out as a result.”

David Davis, the former Brexit secretary, said: “If I’d had my way, I would not have gone for National Insurance – I’d have gone for reducing income tax.”

Julian Knight, a former Tory MP and now an independent, said the Budget was supposed to be a “do or die” moment but appeared “more not do, and then unfortunately we die”.

With the Tories still around 20 percentage points behind Labour, there was debate about whether the Budget provided a major boost to the party’s election chances, as Tory MPs had hoped it would.

George Osborne, the former Tory chancellor, said on his Political Currency podcast: “It is not the silver bullet that’s going to rescue the Tory party’s fortunes, but it is a strong salvo that opens the long campaign to the next general election.”

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