Boris Johnson's pledge to cut national insurance will benefit wealthier families, says think tank

Prime minister promises to raise threshold to help 'working people'

Lizzy Buchan
Political Correspondent
Thursday 21 November 2019 12:35
Comments
Boris Johnson on National Insurance tax cut plans

Boris Johnson's pledge to cut national insurance contributions for workers would mostly benefit wealthier families, according to analysis by an independent think tank.

The prime minister blurted out the key manifesto pledge to raise the threshold to £12,500 at a factory visit on Teesside - claiming the increase from the current threshold of £8,632 would amount to £500 a year to workers.

However the promise unravelled within hours after it emerged the party would first commit to £9,500 in next year's Budget, with no timetable for the higher target.

Mr Johnson told workers in the North-East that he would bring in "low tax for working people" after being asked whether it was "low tax for people like you or low tax for people like us?”

But the respected Institute for Fiscal Studies (IFS) said the plans would cost £2.4bn and act as an "extremely blunt instrument", with only 3 per cent of gains going to the poorest households, and 8 per cent to the poorest working households.

Xiaowei Xu, a research economist at the IFS, said: “Successive governments have fixated on income tax at the expense of NICs, for example by raising the personal allowance while doing nothing to NICs thresholds.

"The attention to NICs is therefore both welcome and overdue. That said, if the intention is to help the lowest-paid, raising the NICs threshold is an extremely blunt instrument.

"Only 3 per cent of the total gains from raising NICs thresholds accrues to the poorest fifth of all households – and only 8 per cent 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 to government – but at the expense of expanding means-testing.”

Raising the threshold at which employees and the self-employed pay national insurance to £9,500 in 2020–21 would affect 600,000 people, while those earning above that rate would see their liability reduced by £85, according to the IFS.

The think tank estimated around 16 million households would gain £150 a year - since many households have more than one earner - and it would cost around £2.4bn a year.

It found the wealthiest 30 per cent of households would gain £180 per year from the rise, while the poorest 10 per cent would only gain around £40 a year.

Poorer families lost out as they often fall below the threshold to pay national insurance - and some benefits such as universal credit are based on after-tax income, so any increases could be cancelled out, the IFS said.

Mr Johnson appeared to accidentally make the announcement when challenged by energy worker Claire Cartlidge during a visit to a fabrication plant in Middlesbrough on Wednesday.

The PM replied: “I mean low tax for the working people.

“If you look at what we are doing, we are going to be cutting national insurance up to £12,000, we are going to be making sure that we cut business rates for small businesses. We are cutting tax for working people.”

Aides appeared to be caught out by the announcement, while the main press office was initially unable to explain Mr Johnson’s plans.

The PM later said: “We think this is the moment to help people with the cost of living and to do more to help people on low incomes with the cost of living to put more money into their pockets.

“We have to do it in a way that is prudent, that is affordable, and we’ve been working on it for a while as you can imagine.

“We will initially go up to £9,500 in the first stage, but of course the plan is to go up to £12,000.”

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in