Morning Call: Just stop National Insurance

Jeremy Hunt is right to want to end NI – and Labour should too.

Will

Good morning. Will here. Thanks to all those who subscribed this week. Today: Jeremy Hunt seems to enjoy setting traps for other politicians, but he appears to have stumbled into one of his own making.

Also, Ed Smith writes on how smartphones have damaged the teenage mind:

I recently observed an extreme example of a common sight. On a busy train to London, an older teenager was suffering from acute anxiety, bordering on panic. Beset by waves of mounting agitation, the routine of learned coping techniques (such as controlled breathing) always gave way in the end to frantic rummaging around for an object in their pocket: the iPhone. By this point, the smartphone was doing its usual thing of pinging, flashing and buzzing. Initially, the process of urgently (but distractedly) scanning, scrolling and swiping at the touchscreen offered a moment of psychological release. But this was immediately followed by a new wave of anxiety, and with it a refreshed cycle of unease.

Both can be read in their entirety on our paid tier. (New Statesman subscribers can read them on our site.) If you would like the full Morning Call experience on Fridays – as well as the daily recommended piece, Mailshot, and Ben’s take throughout the week – join us:

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Having spent £9bn on a 2p cut to National Insurance contributions (NICs) in last week’s Budget, Hunt added a remark that quickly became the headline: “Our long-term ambition is to end this unfairness.” Hunt and Rishi Sunak have since faced demands to explain what they think would happen to our already rather cash-strapped state if it abolished its second-biggest tax.

This gave Labour space to describe the ambition as a “£46bn threat to the funding of state pensions and the NHS” that could, like the Truss-Kwarteng mini-Budget, only be funded by unsustainable borrowing.

This is a pity, because tax experts I’ve spoken to say abolishing NICs is a great idea, and one that Labour should use. In fact, I’m told that this idea has been discussed within Labour, because it would offer the opportunity to cut taxes for workers without any impact on spending.

“You don’t have to be a politician of any great imagination to sell this to most people as a tax cut,” says Dan Neidle of Tax Policy Associates (who Anoosh recently interviewed here). Neidle told me that the current rate of employee NICs – the 8 per cent deduction that appears on most people’s payslips – could be replaced by a 5p increase in income tax, and the Treasury would get the same amount of money. This magic is achieved because the people who don’t pay NICs – people who get their income from dividends, landlords, pensioners – would pay more. Every employee in the country would get a tax cut.

Even better would be the replacement of the extra 2p NICs currently paid by higher earners with a slightly more than 1p increase in the top rate of income tax. “Again,” says Neidle, “that is a tax cut for highly paid employees, worn largely by people receiving dividends and rent. You’re distributing from wealthy investors to wealthy employees.”

So why not do it? The answer is that National Insurance is a fiction to which many people cling. Last week, the Guardian’s editorial board wrote that “the shared responsibility for paying NICs still represents the foundational, and to many people almost sacred, principle of the welfare state… NICs are based on the need for solidarity across class, age and gender.”

This is piping-hot nonsense. NICs are income tax that some people, notably landlords and wealthy pensioners, don’t have to pay. If they represent a national principle it is this country’s generational tilt towards the wealth of the old over the earned income of the young, a principle that aggressively opposes economic growth and opportunity for workers.