Who would want to be chancellor?

Well it's the 6th March 2024 and in a few hours we will find out what the Chancellor has in store for us.  It seems that much of the budget has already been leaked. 2p off National Insurance is the headline.

This follows a 2p reduction in employee National Insurance last year which took effect in February this year.

So what is National Insurance?  Well the question should be "what is it supposed to be?".

Originally it was intended to be funding for State Pension. In other words our National Insurance contributions would be paid back to us in old age. 

Apparently we are all living longer and with an ageing population the burden of more non economically productive Old Age Pensioners surely should mean we should be saving more for old age - not less?

Well not according to the Chancellor.  

The problem really is that successive Governments have treated National Insurance as general taxation.  In other words the basic rate of tax is not 20% but currently 30%. and soon to be 28%.

Our current Chancellor, Jeremy Hunt, is no exception and is tinkering with our "State Pension" in order to avoid actually doing real tax cuts.

Our National Insurance contributions are not ring fenced solely for us. Employers also have to pay 13.8% of most of our salary towards our State Pension.  Or at least that's the story.

The reality is the Government funds State Pension out of the current account - it does not make any provisions for our old age. Our National Insurance contributions are not invested or put in a client account for the day when we retire.  The Government just spends the money today in the hope that there's enough money coming-in in the future (or they will print the money if they havent got it) when we are owed it in our old age.

It's a giant Ponzi scheme. The government needs lots of new suckers to pay into the system in order to pay the State Pension.  If a company did this, the directors would be carted off to prison for fraud.

The State Pension has something called the triple lock to ensure it increases broadly in line with inflation and that pensioners, who generally tend to vote conservative, feel they are not being left behind.

In April 2024, the state pension will increase by an inflation busting 8.5% - inflation is currently about 4%.  That means it will increase to £221.20 per week or £11,502.40 per year.

It is currently £203.85 so that's an increase of £17.35 or £902.20 per year. 

In February 2023, the DWP stated there were 12.6 Million people drawing state pension. So that means the £902.20  increase has cost taxpayers an additional £11.3 Billion. It is tax payers paying for this as the State Pension is funded out of the current account and not National Insurance.  The 2p reduction in National Insurance is estimated to have cost £10 Billion.  More money out. Less money in.  

So the pension tax bill is increasing but the Chancellor is busy cutting the supposed funding for pensions.....

This is proof that National Insurance is nothing more than yet another tax.

So why has the Chancellor decided to cut employee National Insurance rather than something else?

Why didnt he cut the employer 13.8% National Insurance charge?  Well it would make no difference to your pay packet.  It would make a difference to the company and cost of employing people however companies can't vote MPs in hence why would he improve the life of businesses.

Why didn't he cut the basic rate of tax or increase the basic rate tax threshold?

The basic rate of tax cut would impact everybody - including pensioners.  With the increase in state pension to £11,502, it brings many pensioners very close to the tax threshold of £12,570.  Any additional income from other sources such as private pensions would mean pensioners would pay more tax at 20%.  Anyone of State Pension age does not have to pay national insurance anyway (circa age 65 - 68). So the generous increase in State Pension is likely to be clawed back from pensioners in the form of tax.

Increasing the tax threshold would benefit everyone - including pensioners - hence he hasnt done it.  By cutting National Insurance he is reducing taxation for a much smaller group - working people - including the people of Scotland.  The Scottish government controls their own tax bands and rates.  By not changing tax rates, those with mostly "passive income" eg landlords as  opposed to earned income, don't benefit. 

The Chancellor has therefore:

• Alienated pensioners - the grey vote typically votes conservatives
• Alienated landlords - they typically tend to vote conservative
• Benefited the working class - who generally vote Labour 

 It seems that the Chancellor has pretty much given Labour the keys to Government by alienating traditional conservative voters or is his plan to be the next Labour chancellor?