Labour sparks fears that NI ceiling will be lifted
Chancellor Gordon Brown has sparked fears that the ceiling on National Insurance Contributions may be abolished, leading to a potentially unlimited rise in payments after the election.
The Chancellor, who has neglected numerous opportunities to dispel fears that NICs will rise under a second Labour term, could theoretically raise or abolish the cap on National Insurance without making any changes at all to income tax rates.
The Daily Telegraph printed a set of estimated figures in the event that the NI cap were to be removed, reporting:
"Anyone being paid more than £29,900 would then be hit, not only the rich. If the cap is abolished all together, 50p out of every pound earned above £33,935 (which is where the present 40% top income tax rate starts) would go straight to the Exchequer. Someone on £40,000 a year would find themselves paying an extra £1000; on £50,000, the bill would be an extra £2,000; on £60,000, an extra £3,000 and so on. Strictly speaking, however, there would be nothing to prevent Mr. Brown from claiming that he had honoured Labour's manifesto pledge not to raise income tax rates."
UKTECH's London seminar 'Opportunities from change in the contracting market' addressed the same point before NI cap fears were raised, telling contractors: "With all of this Chancellor's budgets, you have to remember what's gone before and keep a good track of what he has said he's going to do in the future because the two don't always match up. Back in 1999 he said that Employer's NICs were going to come down to 11.5% in this coming tax year. In fact as the budget showed it's only going to be 11.9% and we've lost .4% somewhere, something to do with green taxes. He could not afford it."
Raising personal tax through a number of low-key stealth taxes without raising the headline rates, Mr Brown has watched thresholds increase in line with inflation, rather than earnings, resulting in more people than ever before paying income tax, and 700,000 more paying at the top rate.
When asked whether he would be introducing similar tax increases, William Hague replied "Our plans are to reduce tax, so we are obviously not planning to increase taxes. The question arises for the Labour party on the National Insurance ceiling because they did give a guarantee at the last election that they wouldn't raise it. Then they went on to raise it. Now we want to know whether they will do it again in the future because it will hit middle-income earners."
Mr Hague said that four million taxpayers will "effectively be paying 50% income tax." However, the Chancellor dismissed the claims as "typical Tory smear."
The Labour Party could not state they would not abolish the ceiling on NICs at the time of going to press.
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Richard Powell, UKTECH