- National Insurance
Head of retirement policy, Tom Selby:
“Liz Truss has is reportedly considering scrapping the social care National Insurance levy as soon as she enters office.
“The levy was introduced in April this year with the stated aim of funding proposed reforms to the UK’s creaking social care system.
“In 2022/23 the Government simply added 1.25% to the National Insurance rate on workers’ pay, with the plan then to separate the levy out on payslips from April next year. The dividend tax rate was also increased by 1.25 percentage points.
“Of course, changing the label makes no difference to taxpayers. As things stand, annual earnings up to £12,570 pay 0% National Insurance, with earnings between £12,570 and £50,270 subject to NI at 13.25%. Any earnings above this level pay NI at 3.25%.
“The impact of cutting those rates back by 1.25 percentage points would therefore depend on the income you earned. Someone earning £30,000 a year would pay £18.15 less NI per month under Truss’ plan – a helping hand but one that is dwarfed by the energy price hikes expected in October and January.
“The move also calls into question how the planned social care reforms, which include a cap on lifetime costs, will be funded. While the idea of a hypothecated tax is of course a nonsense in reality – all tax and NI goes into the same pot – Truss will be forced to explain how social care reforms will be funded in light of the decision to scrap the hike.”
| Annual income | Monthly income | Monthly NI threshold | Monthly NI (current rate) | Monthly NI (reduced rate) | Monthly saving |
| £20,000 | £1,666.67 | £1,048 | £81.97 | £74.24 | £7.73 |
| £30,000 | £2,500 | £1,048 | £192.39 | £174.24 | £18.15 |
| £40,000 | £3,333.33 | £1,048 | £302.81 | £274.24 | £28.57 |
| £50,000 | £4,166.67 | £1,048 | £413.22 | £374.24 | £38.98 |
- Inheritance Tax
Head of personal finance, Laura Suter:
“It was inevitable that the most hated tax in the UK would be brought up in a leadership race that has focused heavily on tax cuts and reviews. Neither candidate has committed to specific reforms to Inheritance Tax, with both simply saying they would review it. The good news is that the leg-work has been done for them, as the Office for Tax Simplification has already conducted two extensive reviews into how to reform both the tax itself and the administration of it.
“Options on the table include aligning it with income tax rates, increasing the now-very-out-of-date allowances, boosting the annual gifting rules or cutting the rate from the current 40%. But with the tax having raked in £6.1bn in the past year any reforms in favour of the taxpayer could leave a big hole in the budget. This means it’s probably an issue to be tackled in 2023, rather than being top of the new PM’s to-do list.”
- Triple lock
Head of retirement policy, Tom Selby:
“The triple-lock seems to be under perennial threat, in part because the wild economic ride we have been on in the last few years has swelled the costs associated with uprating the state pension.
“The triple-lock, a manifesto commitment, is supposed to guarantee the state pension rises by the highest of average earnings, inflation and 2.5%.
“However, the Government’s commitment to this pledge proved paper-thin when average earnings in the three months to July 2021 – the figure usually used for the triple-lock the following year – surged past 8%.
“This was deemed too expensive by then Chancellor Rishi Sunak, with the earnings element suspended for a year and state pensions instead rising by just 3.1%, in line with the September 2021 inflation figure. The decision saves the Exchequer around £5 billion a year, every year.
“Liz Truss has pledged not to go down this path again if she becomes Prime Minister, a move no doubt in part designed to present Conservative Party members with clear blue water between her and the man who was central in the decision to ditch the triple-lock.
“Assuming the triple-lock remains in place, retirees could receive a huge boost to their incomes next year. September’s inflation figure will be the one to look out for, with the Bank of England predicting at peak at 13% later this year.
“If it were to hit 13% for September, the basic state pension would rise by £18.45 to £160.30 per week (£8,335.60 per year) in April 2023, while the new state pension would increase by £24.10 to £209.25 per week (£10,881 per year).
“This could cost the Treasury well in excess of £10 billion – a huge price to pay for the keys to Number 10. What’s more, this isn’t a one-off cost – it would fall on the Exchequer every year.”
- Marriage allowance
Head of personal finance, Laura Suter:
“Part of Truss’ pledge is to help families who are struggling with rising costs. Her rumoured plan is extending the marriage allowance, which benefits couples where one doesn’t work, or earns very little, and the other is a basic-rate taxpayer. Currently the allowance means that someone not using their tax-free personal allowance can transfer some of it to their partner, but the suggestion is that this could be extended so the entire £12,570 allowance could be transferred, saving couples up to £2,514 a year.
“Some will see this as an odd move at a time where increasingly both parents work, and rather than encouraging economic growth and boosting productivity by getting more parents in the workforce, it instead gives a tax break for those who stay at home. Extending it to those in other caring roles, such as people looking after elderly parents, helps to dodge claims of an inverse tax on the childless, but regardless it feels like a policy more suited to the 1950s than modern day Britain.”
