Jeremy Hunt’s pledge to scrap national insurance ‘more reckless than Liz Truss’, Labour warns

Labour challenged Jeremy Hunt to say how he would pay for ‘unfunded £46 billion tax cut’

Archie Mitchell
Thursday 07 March 2024 14:31 GMT
Jeremy Hunt forced to defend Budget impact on low-income earners

Labour has denounced Jeremy Hunt’s plan to scrap national insurance entirely as “reckless” following his Budget pledge to cut the tax by 2p.

Shadow chancellor Rachel Reeves refused to back the move, arguing it was a bigger tax cut than those introduced by former prime minister Liz Truss which sparked a short-lived but costly economic crash.

Ms Reeves said abolishing national insurance would cost £46bn every year and Labour would not back the move because Mr Hunt had not explained how it would be paid for.

Jeremy Hunt has said he wants to get rid of ‘unfair’ national insurance (Getty)

She told BBC Radio 4’s Today programme: “The Government has suggested it would cut NI entirely at a cost £46bn a year - that is a bigger unfunded tax cut commitment then even Liz Truss and Kwasi Kwarteng tried.

“I want taxes to come down for working people but I am never going to make a commitment without saying where the money is going to come from. That is a clear difference between the Chancellor and how I would operate.”

And Paul Johnson, director of the Institute for Fiscal Studies, said Mr Hunt’s pledge is “not worth the paper it’s written on”.

Mr Johnson said: “Tax has risen to a higher fraction of national income than it has ever been in my lifetime, and I don’t expect it to return to its previous level for the rest of my lifetime.

“In this context. talk of abolishing national insurance does not look realistic... this pledge to cut taxes by more than £40bn goes in the same bucket as pledges to increase defence spending – not worth the paper its written on unless accompanied by some sense of how it will be afforded.”

It comes after the chancellor used his Budget to hand voters a desperate 2p national insurance cut – before signalling his desire to abolish the tax altogether.

Unveiling the cut, Mr Hunt told MPs that “the way we tax people’s income is particularly unfair”.

“If you get your income from having a job, you pay two types of tax – national insurance contributions and income tax. If you get it from other sources, you pay only one,” he said. “This double taxation of work is unfair [and]… penalises work instead of encouraging it.”

Rachel Reeves said Mr Hunt’s promise was even more reckless than Liz Truss’s mini budget (PA Wire)

Allies of the chancellor made clear after the Budget that he backs the abolition of NI entirely. And in an email to Conservative Party members, Mr Hunt said it was his plan to eliminate national insurance “in the next Parliament”.

Quizzed about the suggestion on Thursday, Mr Hunt doubled down, again describing it as an “unfair” levy. He admitted it will not happen “any time soon”, but suggested one option would be to merge income tax and national insurance.

It came as an exasperated Ms Reeves told the BBC: “The question to the chancellor is, is this a real promise? Is this a real commitment and if so, how is it going to be funded?”

And Rishi Sunak doubled down on the pledge, saying it was his “long-term ambition” to abolish national insurance in the next Parliament.

Rishi Sunak said it was his long term aim to scrap national insurance, a plan Labour has called reckless (Carl Recine/PA Wire)

Speaking at an event in a South Yorkshire pub, Rishi Sunak said: “The reason we have chosen to cut national insurance in particular is because it’s a tak on work.

“We have this unfairness at the moment where if you’re working, you pay tax twice, once in income tax and then again in national insurance.

“That’s unnecessarily complicated because all of that money ultimately goes into the same pot, funds the same public services. But ultimately, as I said, it’s unfair because you are paying tax not once but twice.

“But my ultimate ambition is to remove that unfairness entirely, and if we stick to our plan, not just will we deliver the £900 of tax cuts this year, we can really make progress towards that long-term ambition over time in the next Parliament.”

Labour accused the Conservatives of “shaking the magic money tree” over the pledge.

Its analysis of the new Tory promise showed it would cost £46bn per year, or £230bn over a five-year parliament.

Liz Truss and Kwasi Kwarteng’s mini budget sent mortgage bills spiralling (Getty Images)

Shadow chief secretary to the Treasury Darren Jones said the Conservatives wanted to “re-run the Liz Truss experiment”.

He wrote to the prime minister on Thursday demanding the Conservatives set out how they would pay for the drastic tax shakeup.

In his letter to Mr Sunak, Mr Jones said: “It is vital that you immediately spell out how you plan to pay for this latest unfunded tax cut.

“Your predecessor’s disastrous mini-budget included £45bn in unfunded tax cuts, crashing the economy and sending mortgage rates soaring for millions of households.

“Just like Liz Truss, you have so far refused to set out how you are going to pay for this latest shake of the magic money tree.”

Markets crashed in the autumn of 2022 after Ms Truss and Mr Kwarteng used a so-called mini budget to unveil £45bn of unfunded tax cuts - including abolishing the 45p top rate of income tax.

Mr Kwarteng was quickly sacked, with Mr Hunt brought in to steady the ship by scrapping almost all of the measures announced.

Ms Truss was then forced to resign amid the fallout of the mini budget, which spooked investors and sent mortgage rates rocketing.

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