Pensions are the least vaunted candidates for tax rises in the October 30th budget. Though, as we come on to later, taxing large pensions (pension wealth) is quite alright.
This is an extraordinary chart , put together for Dan Niedle and The Tax Associates by Gabriel Milland of Portland Communications
Which is reinforced by the people who want to pay higher taxes , typically “not us”. There is a little more nervousness here about pensions with “large” pensions being a category that most people seem rather calmer about when it comes to “them”. Cutting pensions is much more popular as long as its other people’s (large) pensions that pay-up.
Joe Public is having a laugh , joking that MP’s expenses is up there with unemployment benefit and interest on Government debt. While the NHS is acknowledged as the big sump, claiming that money spent on migrants suggests that prejudice plays a big part in people’s thinking.
The reality is much more prosaic
We actually have our money spent for us on day to day public services, social security is about a quarter of this (and includes the cost of pensions)
Switching to a view of the lines relative to each other, we can see even more clearly that we are spending to stand still and that we are hardly investing for the future at all (the purple line hardly registers (we spend more on servicing debt than building new stuff).
If we really believed that money raised from taxes was making things better, I suspect we’d be happier to pay it , but right now we remember the 40 hospitals that never got built and we are damned if it’s our taxes that fill the black hole the last Government left us.
This is the key to me of why the Government will not tax retirement savers, through NI on employer contributions. Remember, we don’t mind large pensions being taxed but we won’t have cuts to our retirement saving.
What is clear is that people do not fall for the tax on employer’s national insurance being anything other than a tax on us. Taxing pension contributions will be as unpopular as taking away the winter fuel allowance. Only the nobs fear a cut in tax-free cash and inheritance tax allowances, most people have an interest in employers paying into their pension.
My takeaways
People don’t want any tax on their pensions but they’re happy enough if the tax is on inheritance tax or on large pensions where they’re not involved.
People see taxes on employment costs like NI as a tax on the employer’s capacity to pay them.
In short , people are happy for taxes on other people but not on them.
So what would you do if you were Rachel Reeves?
No Chancellor wants to rile the home terrace and I’d be surprised if a smart Chancellor taxed ordinary people’s pensions via the back door (especially as people see NI as a tax on them whether it comes as a payroll deduction or not).
Make sure that the bulk of the budget is about capital expenditure on the things the Tories didn’t do (and didn’t properly cost). Make sure that the bulk of the taxation is on other people.
National Insurance is only for supporting citizens deferred State Pension and for financing the sick/accidents. Any rise in NI Contributions should only be used by government for that purpose. It would be highly irregular for the House of Commons to rule in favour of ‘frittering money away’ for any other poppycock scheme
I think that a portion of the national insurance collected is apportioned to the NHS.s This from Wiki
National Insurance Fund
The National Insurance Funds are used to pay for certain types of welfare expenditure and National Insurance payments cannot be used directly to fund general government spending. However, any surplus in the funds is invested in government securities, and so is effectively lent to the government at low rates of interest. National Insurance contributions are paid into the various National Insurance Funds after deduction of monies specifically allocated to the National Health Services (NHS). However a small percentage is transferred from the funds to the NHS from certain of the smaller sub-classes. Thus the four NHS organisations are partially funded from NI contributions but not from the NI Fund.[9] Less than half of benefit expenditure (42.1%) now goes on contributory benefits, compared with over 65% in 1978–79 because of the growth of means-tested benefits since the late 1970s.[10]
An actuarial evaluation of the long-term prospects for the National Insurance system is mandated every 5 years, or whenever any changes are proposed to benefits or contributions. Such evaluations are conducted by the Government Actuary’s Department and the resulting reports must be presented to the UK Parliament. The most recent review was conducted as at April 2020, with the report being published two years later.[11]
https://en.wikipedia.org/wiki/National_Insurance
Henry. You are quite right as the NHS has a part to plat in support of the sick or for that matter to help those that may have been involved in industrial problems of its workforce. But you failed to make any comment on the State Pension in its various confusing forms.
There doesn’t seem to be a majority in favour of putting up any tax. Maybe existing taxes should just be spent better. I wonder if we will find that those with the broadest shoulders have the quickest feet. Perhaps that’s why they’ve started on those with the oldest shoulders first.
“but they’re happy enough if the tax is on inheritance tax or on large pensions” – I don’t see that on any of the charts here. Possibly true, but evidence?