Boris Johnson defends National Insurance levy in Parliament
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The new levy will come into force from April 2023 and has destroyed the principle that pensioners do not pay National Insurance (NI). Initially, it will be set at just 1.25 percent of any income they earn after State Pension age, but history shows that once introduced, taxes have a nasty habit of rising over time.
John Cullinane, director of public policy for the prestigious Chartered Institute of Taxation, was the first to highlight a danger others have overlooked.
In the immediate aftermath of Boris Johnson’s shock tax hikes, he suggested they lay the groundwork for a further National Insurance blitz on pensioners.
The health and social care levy is NI “in all but name”, Cullinane said.
“One of the most interesting aspects of the levy is that it will apply to pensioners, albeit limited to their employment income”.
Cullinane added: “The Government will no doubt argue that this new levy is a special case but it is hard not to see this as setting a precedent making it easier to bring pensioner earnings within the full scope of National Insurance at some point in the future.”
His comments imply that once the levy has been introduced the cash-strapped Government will find it simple to expand the tax later to fund Covid bailouts and balance budgets.
Making pensioners contribute more towards adult social care costs could also head off charges of intergenerational fairness.
The Government’s critics saying that young people are being taxed to protect older people’s property wealth from care fees.
Pensioners have been warned.
Currently, nobody pays NI on earnings below £9,568. However, at that point it kicks in at a hefty 12 percent for workers below State Pension age.
NI then falls to 2 percent on their earnings above £50,270.
The new health and social care level will add another 1.25 per cent on top of this, hitting around 25 million people of working age.
Pensioners who continue working beyond State Pension age will also pay the 1.25 percent levy on their earnings from employment, although their income from pensions and savings will remain exempt for now.
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If Cullinane – one of the country’s top experts – is correct the implications could be frightening for pensioners who continue to work in retirement to top up their income.
If they are brought within the full scope of NI, they could face a tax charge of as much as 12 percent.
That is on top of income tax, which retired people pay once their total income exceeds the personal allowance threshold.
It would be a huge blow for pensioners, as growing numbers are forced to work beyond State Pension age to generate additional income.
Property stamp duty shows how taxes have a habit of rising over time. In 1991, it was charged one just one percent on property values above £250,000.
Once the stamp duty holiday ends at the end of this month, it will kick in at twice that rate – two percent – on properties costing half the value – £125,000. It has a punishing top rate of 12 percent.
Would Boris Johnson’s Government risk incurring the wrath of pensioners by hiking NI to the same level? Time will tell.
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