Jeremy Hunt has been warned that his big surprise in yesterday’s Budget could end up backfiring, as pensioners would be hammered by potentially higher taxes as a result of abolishing National Insurance.
Defending yesterday’s fiscal announcements this morning, Mr Hunt was probed about the alluring promise to one day abolish National Insurance altogether.
Asked whether it’s now Conservative policy to abolish National Insurance altogether, Mr Hunt said they want to “end that unfairness overtime” but promised it’s “something we will only do when it’s possible to bring down taxes without increasing borrowing, and while also protecting public services”.
He said: “I think it is wrong that we tax work twice when we tax other forms of income only once.”
Amid Labour claims that abolishing National Insurance would cost £46billion a year, Mr Hunt revealed that merely abolishing the tax is “not the only way you could end that unfairness”.
He floated that another solution would be to merge National Insurance and income tax together.
However such a move would be politically controversial, as George Osborne was warned when he floated the same proposals way back in 2011.
Mr Osborne wanted to pursue the same policy as part of a tax simplification drive, however was warned that merging the two taxes would mean basic rate taxpayers would see their income tax jump from 20 percent to 32 percent, as the 12 percent National Insurance rate was added on.
Similarly, tax director Mike Warburton warned that higher-rate taxpayers would see their rate jump from 40 percent to 52 percent.
Mr Warburton warned that while stay-at-home mothers could benefit from such a move, it would hammer pensioners and others who do not work, and whose savings would then be taxed at the new, higher rate of income tax.
Chris Sanger, head of tax policy at Ernst & Young, added that while merging the two taxes would cut administrative costs for the Government, it would be a “politically sensitive” move.
Responding to Mr Hunt’s revelation this morning, Gordon Brown’s former Treasury advisor Damian McBride warned: “That sound you can hear is 12 million pensioners getting out their pitchforks.”
He added: “My word, if Theresa May thought the reaction to the ‘dementia tax’ was bad….”
Pensioners will still be smarting after yesterday’s budget, after the Resolution Foundation warned they were the “biggest losers” facing an “£8billion collective hit”.
Ahead of the Budget, Mr Hunt was warned that cutting National Insurance over Income Tax would amount to a shock “tax rise” for pensioners.
If Mr Hunt had focused his tax cuts on income tax rather than NI, the average retiree would have saved £360 a year.
Darwin Friend, head of research at the TaxPayers’ Alliance, said: “Pensioners will feel deeply let down if the chancellor doesn’t cut income tax.
Yesterday, Dennis Reed of Silver Voices slammed the Budget as a “stunning miscalculation” by Mr Hunt.
Mr Reed accused him of failing to mention older people “or the word pensioner once in his Budget speech”.
“If this was a pitch to floating voters it failed miserably in respect of senior citizens. The Budget was a blank page for 12 million older voters. In appealing for the votes of working families, the Chancellor has taken older voters for granted”.
