In Depth

What is National Insurance and why are the Tories pledging to cut it?

Boris Johnson lets slip manifesto pledge on the tax in apparent blunder

Boris Johnson has pledged to increase the minimum threshold for National Insurance (NI) payments to £12,500 - but then rowed back on the tax cut promise.

The prime minister was at a general election campaign event in Middlesbrough when he “blurted out the key announcement” - which is likely to be a flagship element of the Conservative manifesto, to be released on Sunday, says The Guardian.

But “it quickly emerged that the Tories would only pledge to raise the threshold to £9,500 next year, then lift it gradually over many years”, the newspaper continues.

What is national insurance?

NI is a tax paid by workers and employers that funds state-run public services. It it usually automatically deducted from workers’ pay packets via the pay as you earn (PAYE) tax code, and goes straight to HM Revenues and Customs.

Under the current thresholds, workers pay NI if they are over 16 and earn at least £8,628 a year (£166 a week), or if they are self-employed and making a profit of £6,365 or more a year.

The money raised is spent on the NHS, unemployment benefits, sickness and disability allowances, and the state pension.

Each worker’s NI payments determine which benefits they can receive, and what level of state pension they get when they retire.

Why would the Tories cut it?

In an interview with The Times following his NI slip, Johnson said he would raise the threshold to ensure “low tax for working people” and “help with the cost of living”.

The PM had earlier claimed that the initial cut in payments to £9,500 would “put £500 in the pocket of everybody” - although a later Tory press release said the saving would actually be around £100 per person.

And the Institute for Fiscal Studies (IFS) says the saving to workers would be lower still, at about £85 a year, and would cost the Exchequer around £2bn - money that Labour says should be spent on public services.

The IFS added that a threshold rise to £12,500 would save workers up to £465 a year - at a cost to the government of £11bn.

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And the response?

Labour has warned that the reduced revenue would almost certainly mean cuts to public services. Shadow chancellor John McDonnell said: “Even after ten years of cruel cuts and despite creaking public services, the Tories still think the answer to the challenges of our time is a tax cut of £1.64 a week, with those on Universal Credit getting about 60p.

“Independent experts have said this will cost up to £11bn, so everyone who relies on public services and social security will be wondering whether they will be paying the price.” 

The Scottish National Party’s Drew Hendry said raising the threshold would benefit the “better-off first, and even more than those people on low incomes”.

That view was echoed by Xiaowei Xu, a research economist at the IFS, who said: “If the intention is to help the lowest-paid, raising the NICs threshold is an extremely blunt instrument. Less than 10% of the total gains from raising NICs thresholds accrue to the poorest fifth of working households.

“The government could target low-earning families much more effectively by raising in-work benefits, which would deliver far higher benefits to the lowest-paid for a fraction of the cost.” 

The Labour Party has pledged not to raise NI or income tax contributions for the bottom 95% of earners, while the Lib Dems say they would review NI payments to “ensure fair and comparable treatment”.

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