Prime minister wants to abolish national insurance

Prime minister wants to abolish national insurance

Mar 13, 2024

Rishi Sunak has hinted at the possible abolition of national insurance contributions (NICs) for employees after another 2% cut at the Budget

National Insurance (NI) has been around since 1911 and with a general election coming up the prime minister is attempting to win voters over with talk of removing the tax completely. If abolished, this move would reduce the effective tax rate for basic rate taxpayers to 20%.

On 8 March Sunak told a crowd in Rotherham: ‘Everyone in work is paying tax twice, once in income tax, once in national insurance, so that’s unnecessarily complicated because all that money ultimately goes to the same pot, to fund the same public services.’

NICs are the second highest contributor to tax in the UK after income tax, making up £178bn of the tax intake in 2022/23, with £103bn coming from employer contributions on PAYE staff. Employees’ contributions accounted for £65bn of the total amount in 2022/23 with the rest coming from self employed contributions.

Employers’ currently pay a rate of 13.8% for every employee in NICs, and still pay the contribution if the employee is older than the state pension age. However, the employee is exempt from NICs once past this age.

Two days earlier it was trailed by Jeremy Hunt in his Budget speech, saying: ‘Because we believe that the double taxation of work is unfair, our long-term ambition is to end this unfairness.’

In November the Chancellor reduced the rate of NICs by 2%, which came in on 6 January this year; last week he repeated this, with another 2% cut, reducing the rate to 8% overall.

Labour leader, Sir Keir Starmer responded to the comments on NI cuts, saying: ‘The Chancellor made a staggering £46bn unfunded commitment to abolish national insurance, that’s bigger than Liz Truss’s commitments, so they’ve learnt absolutely nothing.’

Any abolition would have to lead to a hike in other taxes, perhaps even income tax, to offset the loss of NICs.