The Prime Minister has suggested the possibility of eliminating National Insurance contributions (NICs) for workers, following another 2% cut announced during the Budget.
National Insurance, established in 1911, plays a significant role in UK tax revenue, second only to income tax. In 2022/23, NICs generated £178 billion, with £103bn from employers and £65bn from employees. Currently, employers pay a 13.8% rate on NICs for each employee, including those over the state pension age, though these employees are exempt from paying NICs themselves.
The idea of abolishing NICs aims to simplify taxation.
Rishi Sunak said:
"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."
This move could significantly reduce the effective tax rate for basic rate taxpayers to 20%. Chancellor Jeremy Hunt also echoed this sentiment, emphasising the unfairness of double taxation on work.
The recent Budget included a repeat of a 2% NIC rate cut, initially implemented in January, now totaling a 4% reduction. This proposal has sparked debate, with Labour leader Sir Keir Starmer criticising the plan as an unfunded commitment surpassing £46 billion, potentially requiring increases in other taxes, like income tax, to compensate for the loss of NIC revenue.
The discussion comes ahead of a general election, indicating efforts to appeal to voters with tax reforms.
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