Pensioner groups are demanding “urgent clarity” from Jeremy Hunt over his plan to axe National Insurance.
They fear reforms signalled in the Budget statement will “clobber” the elderly. And they warn some pensioners are being forced to sit in the dark or eat dog food because they have run out of money.
The Chancellor told MPs he wanted to end the “double taxation of work” and Treasury sources have confirmed this means axing employee NI contributions, charged on wages in addition to income tax.
But the Government has declined to reveal further details, prompting concerns about how the policy will work.
Campaigners say merging NI and income tax could boost take-home pay for working people, but lead to higher bills for pensioners, who usually only pay tax.
Sally Tsoukaris, general secretary of the Civil Service Pensioners Alliance, said: “Pensioners need urgent clarity. Many will have been alarmed by the suggestion that income tax and NI may be merged.
“That measure would be an outrageous transfer of the tax burden from working people to those that paid in all through their working lives.”
She added: “How can the Chancellor justify clobbering pensioners further?”
Joanna Elson, chief executive of charity Independent Age, said: “After several years of rocketing price rises from all angles, many of those we support have been left with little ability to afford even the essentials.
“One woman told us she was skipping meals because her health condition means she has to keep her house at a certain temperature, and she can’t afford to do both. A man told us he’s been eating dog food because it’s cheaper.”
A Treasury source said: “The ambition is to end the unfairness of the double taxation of work.
“We won’t do this by increasing tax on people in work – our ultimate ambition is to abolish NI contributions.”
The Treasury also highlighted the decision to support pensioners by maintaining the “triple lock”, which means the state pension rises by 8.5 per cent next month.
Mr Hunt last week announced a 2p cut in NI, coming on top of an earlier 2p cut in January. It means employee NI contributions have fallen from 12p to 8p, saving the average worker £900 a year. But some Tories believe his decision to “fly a kite” about axing NI risks backfiring, with Labour pointing out that simply ending employee contributions without a replacement would cost the Treasury £46billion.
There also are fears voters do not notice cuts to it in the same way as reductions to income tax.
One Conservative said: “It’s not going to make any difference. It’s not going to turn the dial at all.”
Adding to Mr Hunt’s woes, Labour is seeking to capitalise on the Government’s decision to freeze income tax thresholds at 2021 levels, which effectively pushes up bills due to inflation.
Analysis by the House of Commons Library commissioned by Labour shows that average real earnings for workers over 60 are £2,300 lower than in 2020-21 and income from the full state pension is £400 lower after adjusting for inflation. Shadow Work and Pensions Secretary Liz Kendall said: “The Tories’ tax plans are set to leave eight million pensioner taxpayers an average of £1,000 a year worse off.”
And the decision to freeze income tax thresholds is undermining the Chancellor’s attempts to get people back to work following the pandemic, according to the Office for Budget Responsibility.
Post-Budget analysis from the watchdog warned that the number of working-age adults classed as economically inactive, which means they are not even looking for a job, had risen to 9.3million.
It said: “This keeps it around its highest level in over a decade and 700,000 more than before the pandemic.”
Measures announced by the Chancellor, including NI cuts and providing more childcare, will encourage people back to work “but the ongoing ‘fiscal drag’ from frozen personal tax thresholds will also weigh on work incentives”, said the watchdog.
In addition, data published by watchdog the Office for National Statistics alongside the Budget show that households will spend a staggering £109billion this year servicing debts such as mortgages and credit cards, an average of £1,917 per household and double the figure in 2021.
But Labour is also under pressure after the Institute for Fiscal Studies accused both major parties of a “conspiracy of silence” over spending cuts of £18billion.
A Labour government would have to match that unless it raises taxes, according to the think-tank. The SNP’s leader at Westminster, Stephen Flynn, said: “Sir Keir Starmer must come clean over where the axe will fall under damaging Labour Party plans for another decade of austerity cuts to public services.”
Mr Hunt also faced apparent criticism from colleagues demanding higher defence spending. Foreign Office minister Anne-Marie Trevelyan and defence minister Tom Tugendhat published a joint article urging the UK to “lead the way” and increase defence spending from two per cent of GDP to at least 2.5 per cent “as soon as economic conditions allow”.
