Will PM's national insurance pledge help 'working people'?

Claim

Boris Johnson said the Conservatives would cut taxes for “working people” by raising the threshold for national insurance contributions to £12,000.

Background

Earnings above £8,632 a year are subject to national insurance contributions under the current system. These are paid by employers, employees and the self-employed. National insurance is separate from income tax. Paying it entitles individuals to some state benefits.

The new policy, which slipped out when the prime minister visited workers in Teeside, would include raising the threshold to £9,500 next year, before it would then be gradually lifted over several years until it reached a target of £12,000.

Asked whether the tax cuts would be for all, or just people like himself, he said: “I mean low tax for working people.”

Reality

The details of the policy remain vague, as the Conservatives have yet to publish a manifesto.

According to the Resolution Foundation, raising the threshold to £12,500 – in line with the tax-free allowance on income tax –would give most workers a tax cut of £480, at a cost of about £11bn to the Treasury. The Institute for Fiscal Studies estimates that every £1,000 increase in the threshold would cost at least £3bn each year.

It is not yet clear how the policy would be funded, given the Tories’ plans to increase other areas of government spending without announcing significant increases in tax.

The plan could favour richer households over poorer ones. The IFS reckons that about 16m households will benefit, but that the largest proportional gains will go to middle-income and upper-income earners. It said households nearer the bottom typically would get a larger share of their income from benefits, which meant they would not feel as much of an impact.

People in work but on universal credit would not benefit as much, losing about 63% of the cut due to the means-testing of the benefit. They would receive a £480 cut, but their universal credit would immediately be reduced by £300, eroding the impact of the reduction.

The Resolution Foundation said the threshold hike was “relatively progressive as far as tax cuts go”, but that to reduce poverty it would be better and more cost effective to reverse the £12bn in benefits cuts imposed under austerity policies since 2015.

Robert Palmer, executive director of the Tax Justice UK campaign group, said: “This will be pitched as a sop to those on lower incomes, but most of the benefits will go to the well-off.”

Verdict

Johnson’s tax cut would benefit every taxpayer in the country, and “working people” would stand to take home more of their pay. However, it is estimated that the move would most help the richest. There could be more cost-effective ways to help lower income workers.