News has leaked that Boris Johnson is to write millions of people out of making national insurance contributions. This will be the result of increasing the minimum contribution threshold to the weekly equivalent of £12,500 a year.
The gains to those making payments will be small. I am not saying nearly £500 a year is insignificant when you're earning £12,500 a year: it very clearly is. But let's be clear, it's not only they who will gain. This benefit will; unless compensated for, go right up the income order to those who clearly have nothing to do with reducing a charge on those least well off in our society.
And what matters at least as much as any gain to those on the lowest incomes is the state pension and other benefit consequences of this. These are massive, and all at cost to those who Johnson says should gain from this proposal.
Our state pension entitlement is still based on the number of years of national insurance contribution made. I know there are compensatory benefits such as pension credit, but that's not the point. They might come and go. So far no one has been trying to get rid of the state old age pension, even if its value has been eroded. And now large numbers of people will have their entitlement substantially curtailed. How convenient is that for a government wishing to curtail benefits and shrink what they think to be the welfare state?
And this is not the only issue. It now seems that many entitlelements are based on being able to prove work has been done. Even the right to stay in the UK can now be based on this. And now many people will not need to be on payrolls and will not have contribution records and so will have no recourse to this evidence in the event of disputes on such issues. Where does that leave the vulnerable? More vulnerable is the very least of the answers to be provided.
I do not have a problem with reducing NIC on those on lowest pay. But I mean reducing it and not eliminating it until such time as dependence on a payment record is also removed and proof that a person has worked as a measure of a contribution to society is eliminated.
And I do have a problem with this being lauded when very large tracts of income - from investment sources - attract no national insurance at all and so provide ample opportunities for tax avoidance for those recategorising their earnings.
There is a fundamental flaw in Johnosn's plan and that is it is designed to attack those most vulnerable in our society. That's typical. It also needs to be said. This plan stinks of privilege with an indifference to need. That's why I oppose it as he's presented , and as he's likely to present it.
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You don’t have to pay any national insurance to receive your state pension credit for a tax year.
You just have to have earned more than the lower earnings limit (LEL) which is £118 per week for 2019-20.
Who’s missing something here?
And the difference is?
You realise that the LEL will rise if NIC does?
Leaving LEL at (today’s rates) £118/pw while raising PT to (based on £12,500) £240/pw is changing someone’s NIC contributory record to someone on (say) £11,500, how, exactly? I’m not seeing it personally.
Apart from possibly the argument that “they simply will, just because they can.”
For the audience, someone paid
– below the LEL gains no NI contribution record
– between the LEL and PT “pays” NI at 0%, while still being considered as ‘contributing’ for the purposes of accruing a state pension
– above the PT is when the 12% rate kicks in, which is the £12,500 figure being bandied about.
– (and for completeness, the UEL is when it drops back down to 2%, i.e. when you’re earning – currently – £50K)
Current bands are at: https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions
But that won’t happen
The cost of record keeping would prevent it
So shall we stop generating excuses here?
What and its going to rise that significantly that its going to write millions out of the pension? Another nothing article spreading bull****. Try engaging your brain you halfwit.
Yes, that could be the consequence
And I care
And you don’t
It is even worse than you say Richard. We now know that the self employed are not saving enough for retirement. 2/3rds of the 5 million are making no pension contributions:
https://www.thisismoney.co.uk/money/pensions/article-6594735/How-tackle-Britains-self-employed-pension-savings-crisis.html and https://www.thisismoney.co.uk/money/pensions/article-7554943/Self-employed-nudged-save-2-50-day-pensions.html
And you have previously highlighted that their average income is very low – which is not surprising as many are faux self employed in the gig economy. The TUC reports average income £12,300 (2017) and had actually fallen from £13,200 in 2016. Self employed are now 15% of the workforce.
https://www.tuc.org.uk/news/two-million-self-employed-adults-earn-less-minimum-wage
So yet again we have Tories focusing on the short term and leaving the mess to be picked up by others. In its current manifestation the Conservative Party should be a proscribed organisation!
Thanks
It’s actually worse than you point out Richard. Andrew Neil confronted a government minister on the subject as reported here – https://www.theneweuropean.co.uk/top-stories/brandon-lewis-on-andrew-neil-over-national-insurance-1-6386315?fbclid=IwAR2EUvbcajQf97rNIVuyBNlKcL4t7bmTehwFMn4DYIUFm5qKCoP6awo9gmg
So our pension payments from the government depend on how much we pay the government?
What happened to MMT?
I find some comments here really stupid
Yours is one of them
Those are the rules
This has nothing to do with MMT
Try engaging your brain or don’t call again
“Nothing to do with MMT”?
I fear that you are the one not engaging your brain. Though claiming to understand MMT, most of your public doesn’t, so perhaps you think you need to talk down to them in their own language and framing?. Either that or you have temporarily forgotten MMT basics, for example:
*The ability of the UK government to pay pensions is not related in any way to tax receipts or bond sales, as all government spending creates new money ex nihilo. The new money is either taxed back or saved by the private sector. The untaxed new money over all time is called the National Debt.*
So, when you write such things as:
“Our state pension entitlement is still based on the number of years of national insurance contribution made.”, or “It now seems that many entitlelements (sic) are based on being able to prove work has been done.” without criticism you are simply repeating and reinforcing the framing that allows the flawed system to continue.
Though these are true statements describing the pension system ‘rules’, if you claim to understand MMT you should take the opportunity to remind or illuminate your readers that these requirements are totally unnecessary and indeed are cruel and stupid constraints invented to reduce the total amount needing paid to old people, to conform to the public belief that the government needs to behave like a household and can’t afford to pay decent pensions to all its citizens, because “where’s the money going to come from?”.
Unfortunately, though your heart is in the right place, your blog articles are a mish-mash of neoliberal framing with the odd flash of MMT illuminating the darkness. You are, in a word, inconsistent.
In passing, I note that your ego is vast and I suggest that you learn humility, even with non-persons who visit your blog such as myself. It would be good for your soul.
Brian
You’re not a non person
But you are horribly arrogant. It is you who has the problem with ego and a lack of humility
And I repeat my suggestion, too blinded by dogma to tackle part in debate here
Why? Because if you really think MMT answers the rules on how pension entitlement ents are determined then you really have very badly lost the plot
MMT is not a hammer
Not everything is a nail
Please don’t call again
Richard
Thank you!
I was wondering how National Insurance contribution records for the state pension would work in this scheme. I actually came up with the same scenario as you did, but couldn’t make myself believe it!
I’ve been out of work for almost 10 years now due to disability, but I still pay my voluntary National Insurance every year to make sure I get my state pension. That’s how important this stuff is.
Is there a similar problem with contributory Jobseeker’s Allowance? (At the moment, you get 6 months of JSA without conditions if you’ve paid 2 years of National Insurance.)
Not sure on the last
@ Neil Ferguson
According to Which? if you’re on JSA you get NI Class 1 credits, which covers you for the State Pension but not other benefits such as JSA/ESA, which (if you’ll pardon the pun) makes sense when you think about it. Here’s the link:
https://www.which.co.uk/money/tax/national-insurance/national-insurance-credits-afkfs0m7ugwc
@ Neil Ferguson
Opps! I got Class 1 & Class 3 NI credits mixed up. It’s Class 3 NI credits that only counts towards the State Pension, not Class 1 as I stated above.
Thank you, Sandra. Class 3 contributions are the ones I pay to top up my state pension, so I can confirm that you’re right there.
For various reasons, I don’t qualify for JSA, but your reminder that JSA claimants also get Class 1 NI credits is still good to have. You never know when it might help someone else reading this page.
My original question was about entitlement to JSA in the first place, rather than the National Insurance effect of receiving it. I looked at the latest JSA eligibility rules, but they’re even more of a dog’s dinner than they used to be when I last claimed it:
https://www.gov.uk/jobseekers-allowance/eligibility
I have to confess, I’m still none the wiser as to how (or even whether) the Conservative Party’s plan to raise the NI threshold will affect entitlement to JSA.
I’m just worried that some low earners might miss out on JSA if the rise in the threshold causes them to fall out of National Insurance.
Hi Richard, it seems to go unnoticed by most that the NI rate is reduced to only 2% for wage earnings over 50k. I wonder if increasing that threshold to say, 60 or 70k might mitigate? (Obviously I would rather that threshold be increased anyway but small targets and all that..)
I would remove that cap…..
But most of all we need an NIC charge on unearned income
NI on unearned income?
Now that’s what call ‘heterodox’!!
It’s called an investment income surcharge of 15%
Paul H has already mentioned that employees are treated as paying NICs as long as they earn above the Lower Earnings Limit, currently £118 per week or £6,136 per year, which is significantly below the Primary Threshold when they start to pay primary Class 1 NICs, £166 per week or £8,632 per year. The LEL tends to increase each year with inflation – has anyone indicated any plans to increase the LEL too?
(Perhaps needless to say, when the rate is 12%, increasing the primary threshold by less than £1,000 to £9,500 does not save anyone £500 per year, whatever that Blond Man thinks his briefing says.)
As to “many people will not need to be on payrolls”, I’m sure someone will correct me if I am wrong, but as I understand it, with limited exceptions, all employers are required to operate PAYE for all employees, whether or not there is actually any tax or NICs to pay at the time of the payment.
There is a serious point about records. My employer gives me payslips and P60 and so in electronic form. I tend to print them out from time to time and keep a paper copy, because who knows whether I’ll have access to the system that produces them in a few years time.
On rates, it bear repeating that the combined rate of tax and NICs for employees (in England, Wales and NI at least: Scotland has different rates) are zero up to £8,632 pa, then 12% up to £12,500, then 32% up to £50,000, then (in broad terms) 42% up £150,000 (with a 62% band at £100,000 to £125,000 as the personal allowance is withdrawn) and 47% above that. Or to put it another way, in reality, there is only a 10% differential between the basic rate and the higher rate.
It sounds as though Richard wants the top two rates to be in effect 52% and 57%, with a narrow band of 72% at £100,000. I suppose we can break out the small violin, but you can expect some significant behavioural responses.
I have little doubt at all that the LEL will rise
Can you think why not?
The LEL has been increased by a few pounds in almost every year since 1975 (as far back as I could easily find). It will almost certainly be increased in most years in the future, but a big jump will be obvious.
The main reason for introducing a separate Primary Threshold in 2000 was that the lower limit on employee contributions was increased substantially over two years, from £66 pw in 1999-2000 to £86 pw in 2001-02, and the concern then was that people being relieved of the obligation to contribute would also lose entitlement to contributory benefits (including full state pensions). The Conservatives at that time complained that this change seriously undermined (what was left of) the contributory principle, although they have not sought to row back on it. Yet.
The PT tracked the income tax personal allowance for a while but has fallen far behind, giving the government the opportunity to propose aligning them again at £12,500.
I cynically perhaps think that is the intention now
I could be wrong
But given this government I doubt it
Where to start?
Auto enrolment in a pension scheme is already a way of taking money off the low paid so the government does not have to support them later. Someone earning 10,000 per year and paying 5% pension contribution will not have a big enough pension pot to live on, but will have a slightly higher income so pension credit will not kick in so early. That same person earning 10,000 per year cannot afford to pay 5%, but is being made to do so.
pension contribution credit,
State pension contributions are complex, but anyone earning the LEL, currently 118 pert week gets pension contribution credits. If the LEL goes up with the contribution level it will be a total betrayal of the low paid. Oh, wait, this is Johnson’s suggestion, so it is bound to happen.
Why fiddle with LEL and all the rest? Why not give everyone basic pension credit?
Good question, but there are other issues to solve as well
I think you are right to be suspicious of the motivation behind the raising of NI threshold. Income tax thresholds have been raised over the years taking many out of income tax altogether and then it is said that they receive the benefits of taxation without making any contribution. This could well be used as a justification to raise the LEL of NI, especially as the NI contribution record is used to calculate any entitlement {‘they haven’t paid anything in so they shouldn’t get anything out’}.
I have always thought that a fairer way was to reduce the rate of tax or NI rather than raising thresholds and thus preserving a vital aspect of tax; the contributory principle.
Exactly my sentiments
Underlying this sort of tweaking is the move to keep the low paid low paid. Any move to take the low paid out of the income tax system weakens their sense of participation in society and sharpens the divide between those who believe (often erroneously) they are virtuously contributing to the nation’s prosperity and those who are increasingly being persuaded that they are useless deadweight.
It is an insidious process.
Anybody in employment should be paid at a rate which allows them to afford to pay tax on their income and still be left with a living wage. Any employer who cannot pay at these rates is not operating a viable business and is in effect being subsidised by government topping up its wage bill…in order to make a profit which is in effect paid by government. This is socialism not to support the poor, but to line the pockets of the wealthier and positively rich.
I think it stinks.