It’s not often National Insurance makes the news but it was the subject of front page attention following the Budget last week. On the same day I met a delegation of members of the WASPI campaign in Westminster – women born in the 50s who have been affected by the raising of the state pension age. I will return to this later but way in which the two are linked is important.
In trying to find extra funds primarily for social care, the Chancellor proposed to raise a part of National Insurance. There was good intention here. Becoming technically self-employed to reduce tax exposure is not uncommon amongst high earners. There is no reason why those running, for example, a law firm should be able to set up a limited liability partnership and pay a lower rate of National Insurance than a teacher, especially when they at present have the same entitlement to a state pension. Similarly IT contractors working in the City earn a large amount and it is their choice to be self-employed.
However, the policy won’t work for two reasons. Firstly it is a disincentive to work hard; for a sole trader, someone who learns a trade, to suddenly find that as they get on they will pay a higher rate of National Insurance isn’t what we stand for as a Government or a country. Corporation tax is low as it leads to more jobs, investment and growth and the same is true for the self-employed.
Secondly the policy goes against the manifesto on which the Government was elected. That means I am working to see if there is a different way, and wholesale reform of national insurance is something I have proposed to the Government before.
The Women Against State Pension Inequality campaign has a strong central theme – ‘We paid in, you pay out.’ This sentiment is based on the fact that National Insurance has been wrongly viewed as a saving scheme for decades, and successive Governments are at fault for not being brave enough to highlight the misconception or deal with the underlying mismatch of assets and liabilities. The money raised is spent that year, and there is in fact no savings pot accumulating for people, just the same way that there isn’t when you pay income tax.
This misconception needs to be addressed, which is why I am trying not only to rework the Budget plan on NI but call for a full review of NI. Why not roll it into income tax and be rid of this idea that the money is ring-fenced for certain things in the future?
The reality of equalising state pension age is that changes of which the Women Against State Pension Inequality say they were not apprised were put through Parliament in 1995. They were agreed across the House then without division at their important stages, and were accelerated subsequently by Conservatives and Liberal Democrats alike.
Concessions now would have to involve men and women, would be impossibly expensive and require a whole new Act. So while I have been trying to square the circle to find a way to help those with a genuine case, there is I am afraid no simple solution outside of the entitlements which people of working age have.