Liberal Democrats should oppose making over 65s pay NHI contributions

Yesterday’s media was heavy with the recommendations of the Resolution Foundation’s “Intergenerational Commission”. The Commission, which was set up and chaired by former Tory minister, Lord Willetts, is “backed” by the CBI, TUC and the Institute for Fiscal Studies. It’s an important contribution to the debate on many big problems our society faces. At first site, much of it seems sensible to and worthy of deeper reading. But there’s one policy I believe Liberal Democrats should oppose.

The Commission proposes that people of pension age who are still working should continue to pay National Insurance contributions. It argues that the measure would raise around £2 billion a year.

My instinct tells me that the majority of those still working full-time beyond retirement age are doing so out of necessity; mainly the poor and the self-employed. They need the money.

The Willetts’ plan will make the self-employed poorer at a time of life when they find it harder and harder to win business, particularly if physical labour is involved. The less money coming into an already financially weak household the more likely mental and physical illness and other social problems.

I oppose the Willetts plan because I think it wrong, unfair and will cause more harm than good. I think too that Liberal Democrats should oppose it because we should be champions of the self-employed.

We believe in the power of enterprise, business and trade to create wealth, foster stability and harness science and technology to build a better world. We believe that individuals should have the freedom to be self-sufficient and run and manage their lives how they wish, free as much as possible from the dead hand of the state. We believe small businesses are fundamental to our national economic success.

Unlike so many current Tories, we also believe that the state has a key role to play in the nation’s health and its education. Those two policy areas are of the most critical importance to self-employed people. Self-employment can be precarious and often a roller-coaster of financial and family challenges. Ask most self-employed people and they’ll tell you it tends to be a life of feast or famine.

Being ill is not an option and if illness strikes a self-employed person they rely on the NHS to get them well again as fast as possible. Because if you’re not fit to work there’s no money coming in. Nor can many self-employed people afford private education. Again, they rely on the state to provide good schools.

It is estimated that there are now five million self-employed people in the UK. Many are in traditional trades like building, retailing and hospitality, but the past twenty years has seen the rise of the highly educated consultancy class of self-employed. People from sectors like IT, advertising and PR, film and TV, graphic design, accountancy and human resources. Such people are often drawn to the Liberal Democrats. We should be bringing them into the fold, winning their support and winning their votes. A good place to start would be fighting to keep the over 65s out of paying NHI.

* Martin Roche is a member of Canterbury Liberal Democrats

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41 Comments

  • Martin Roche, do you have any evidence for your belief that people of retirement age work because they can’t afford to live on their pension? Everyone in work should pay National Insurance Contributions just like they pay Income Tax. If a person is poor and paying NI then the answer is not to give a benefit to old people but increase the threshold for when people start paying NI to the same level as income tax, which was in our last manifesto.

    Your article is actually centred more on saying the self-employed should not pay National Insurance. Of course they should and they should pay at the same level as everyone else and receive the same benefits as everyone else.

    National Insurance should also be extended to unearned income.

    I would have preferred this to have been an article setting out the other problems with this Resolution Foundation idea.

  • I am not sure that the poor, the self-employed, and the over-65s correlate as closely as this article suggests.

    It must be fundamentally unfair that two people doing the same job pay different rates of tax because of their age.

  • John Marriott 9th May '18 - 9:46am

    I don’t know about the self employed; but I’m nearly 75, have an occupational pension and the state pension. I own my house, have no major debts and, after raiding the Bank of Mum and Dad to help my two sons, still have a few grand in various poorly paying investments.

    I would be more than willing to continue paying NICs even now, especially as I recently have required and am quite likely to require serious medical assistance from now on.

    As regards the self employed, I vividly remember my dad, who was a surgical shoe maker, sending me down to the Leicester main Post Office in the 1960s to buy his ‘stamps’ for the previous financial year, which I then pasted into the booklet provided!

    As for the latest Willetts wheel of giving every 25 year old £10,000, is the guy nuts?

  • David Becket 9th May '18 - 9:48am

    From age 65 to 79 I received Councillor Allowances. I paid Income Tax and would have been happy to make a NI contribution, particularly as I was making more use of the NHS than in earlier years. The amount will need to be considered, as would any caps. It is likely that the % of income paid would be less than the normal contribution, which would open the door to look at unearned income.

  • Graham Jeffs 9th May '18 - 9:55am

    I’m somewhat surprised that anyone should pose the question “do you have any evidence that people of retirement age work because they can’t afford to live on their pension”?.

    Let’s not go down the path of expensive research! Just ask people! I know many people who have reached or are reaching retirement age who dread the financial hit that this brings. If they have the good fortune to be able to go on working, this is a huge comfort to them – even if they would prefer to be doing other things. That this income is not subject to NI is undoubtedly a real help.

  • isn’t this just another example of “lets go after the silver voter” who normally vote.

    Please tell me what is the difference between a person over pensionable age continuing to work due to being on a low income and lets say a young family where a mother is going out to work all hours, to make ends meet, but is also on a very low wage and is sacrificing time with her kids?
    Please explain to me why one should pay National Insurance and the other one shouldn’t?

    Also in your regards to the self-employed, I take it you would include those who work through umbrella companies and own their own ltd companies,
    These are people who are enjoying rather generous benefits compared to “employed workers” and paying far less tax.
    45p Millage allowance
    Between £5- £25 a day Subsistence Allowance
    £4 a week Stationary Costs
    Laundry
    Clothing
    Telephone
    Plus many other expenses they can claim as deductions before paying any tax.
    Pay themselves £116 a week to avoid all Income and National Insurance than take money as a Divided and pay only 7% Tax.

    This article is certainly on the opposite spectrum to the the previous articles on LDV on what Libdems can do for the working classes, but I guess it is good to have balance

  • Arnold Kiel 9th May '18 - 10:45am

    First of all, drop the two unjustifiable locks (2,5%, inflation). Intergenerational fairness starts with alignment of interests.

  • Nonconformistradical 9th May '18 - 11:04am

    We should just stop messing about, incorporate National Insurance fully into the tax system so everyone contributes, appropriately, above their personal allowance etc.

    I’m fairly sure at least one still working pensioner – Sir David Attenborough – can afford to contribute….

  • Sue Sutherland 9th May '18 - 12:09pm

    Weasel Willetts is trying to use the antipathy towards the baby boom generation to make the Tories popular. If you are relying on the State pension in your old age then you are going to have difficulty making ends meet. I’m glad Martin Roche has pointed out that there are many different people who are self employed. We need a fair system of taxation and it may be that NI payments should be absorbed into that system, I don’t know. The Tories are just grabbing for money. Universal credit is causing great poverty on the grounds that work is best, now they’re trying to hit people who dare to work after they retire.

  • Stephen Harte 9th May '18 - 12:31pm

    This article makes the case that paying NI contributions means less money left for those who pay them. I can’t see though any justification in the article why we should treat people differently based solely on age.

  • Laurence Cox 9th May '18 - 1:28pm

    @Arnold Kiel
    It was because Thatcher dropped the earnings link for state pensions back in 1980 that we had pensioner poverty increasing through the 1990s and 2000s. It led to Brown’s Pension Credit that made small occupational pensions worthless because every £ of occupational pension was offset by a lost £ of pension credit. Don’t think that dropping the 2.5% and inflation links is a easy solution. Brown was crucified by his political opponents (including us) because one year the low inflation rate meant that pensions only went up by 75p a week; if we had a year with low wage increases the same would happen under your proposals.

  • Peter Watson 9th May '18 - 2:09pm

    Stephen Harte “I can’t see though any justification in the article why we should treat people differently based solely on age.”
    Indeed. Perhaps they should (though I am sceptical), but it does not look like a rational case is being made for that and hence Matt’s accusation of vote-chasing looks justifiable.

    Similarly, for a party that prides itself on evidence-based policy, it is a little depressing to read “My instinct tells me that the majority of those still working …” in an article or a dismissal of a request for evidence with “I know many people who have …”.

  • Ed Shepherd 9th May '18 - 2:39pm

    There is no reason why the over 65s should not pay income tax and NI at the same rate as younger people. If poorer pensioners who have to work would suffer from paying NI then the answer is to raise the NI contribution threshold to match the IT threshold. NI should also be paid on unearned income. If possible, NI and income tax should be rolled into one tax but there might be some details of this that need to be worked out. And why is 65 the magic age? Many people working now will not receive a state pension until they are well over 65, ultimately the state pension age will be raised to 70 or more. Perhaps the concept of a state pension should be abolished and people of all ages receive benefits according to need.

  • Martin Roche 9th May '18 - 3:29pm

    Can I point out to Matt that self-employed, of which there are said to b c5 million, are different from people with limited companies or an “umbrella” company (which I’ve never heard of the micro-business sector). If someone has a limited company they are classed as a director and employee of that company, not as self-employed.

    Someone self-employed is treated in exactly the same way as PAYE employees, except that tax and NHI is paid in lump sums twice a year and that accessing the social security regime is much harder for the self-employed. Corporate structures – limited companies – come at a cost. The standard of auditing required is higher, so more to pay in accountancy fees. Very few self-employed people can afford the luxury of high audit fees. The self-employed are rarely rich. ONS figures for 2016 “The distribution of self-employed income appears centered around £240 a week, much lower than that for employees, which is centered around £400 a week. “

  • david thorpe 9th May '18 - 3:49pm

    i was rather under the impression this was already lib dem policy-or is it o nly something objec tionable if someone else raises it?

  • @Martin Roche

    “Someone self-employed is treated in exactly the same way as PAYE employees, except that tax and NHI is paid in lump sums twice a year and that accessing the social security regime is much harder for the self-employed”

    That is not correct, there are a quite a few allowances that can be claimed BEFORE Tax is paid or are you telling me that an employee working at Mcdonalds for example who might have to travel 50 miles a day to get to and from work can claim mileage allowance, Laundry costs, subsistence allowance etc etc.
    Yes some self-employed operators struggle on the breadline,
    but lets not pretend that it is not also a system that is used by many to pay substantial less tax than the average man / woman in the street.
    I know the difference between the self employed, Director, Umbrella company, what my post should have said was I take it you would like to “extend the policy” and include those using umbrella companies and their own ltd companies.
    In other words chasing votes of the silver voters and middle classes.

  • William Fowler 9th May '18 - 5:06pm

    “We believe in the power of enterprise, business and trade to create wealth, foster stability and harness science and technology to build a better world. We believe that individuals should have the freedom to be self-sufficient and run and manage their lives how they wish, free as much as possible from the dead hand of the state. We believe small businesses are fundamental to our national economic success.”

    Could not agree more with this statement and perhaps worth codifying it into law so that it can be used against govn, big business and councils when they intrude upon these ideas.

    Best way to deal with NI is to merge it into income tax and then have a five year residence test for benefits and 35 year residence test for pensions. If you can’t get the state pension you get pension tax credit which then means you avoid council tax so are arguably better off than someone on state pension so it makes NI payment criteria a joke! Tax office has records going back a long way even though you only have to keep your own records for six years so should be some saving in closing down works and pension dept that would allow the combined rate to be lower than NI and income tax. Then everyone pays a fair rate of tax regardless of income and age.

  • Graham Evans 9th May '18 - 6:13pm

    Realistically any party which proposed that national insurance deductions (presumably at the employee rate) should be applied to unearned income (whether from savings and investments or from a pension) would face electoral oblivion. Politics is the art of the possible. Though there may be all sorts of logical arguments why national insurance should be merged with income tax the backlash from voters with modest savings would make the reception to May’s 2017 proposals on the funding of social care look like a mere minor upset.

    National insurance is a mess and, for instance, with the new state pension arrangements there is now no logic in the fact that the self employed pay a much lower rate than the combined rate of employee and employer contributions, not withstanding that there are a few minor benefits which the self employed do not receive. However the best that realistically could be achieved is probably the idea of all earned income being subject to NI irrespective of age.

  • Harmonising tax and NI, so that everyone paid the combined rate (which at break even would be lower than the current one) would save a lot of admin costs, reduce complexity, and be much fairer.

  • Lloyd Harris 9th May '18 - 9:08pm

    As an accountant I understand why NI and income tax are different and why over 65s don’t pay currently. The layperson’s guide is as follows:

    NI is charged per employment and each employment has a separate limit, it is charged weekly or monthly. NI payment is linked to eligibility to benefits such as you need to contribute for 30 years to get a full state pension. The rate drops after a certain earning limit from 12% to 2% (the latter rate was zero) as it is considered the person has paid their ‘stamps’ i.e. their insurance element and the remainder is just tax – or at least that is what the Government would have you believe.

    NI is also charged on an employer and there is not upper age limit on this or upper earnings limit. This can be argued is the tax people like Starbucks etc. have no choice to pay while they dodge their way out of paying tax on their profits.

    Income tax is an tax charge spread over a year, it includes all employments plus other income and combines them together. It is far more complex to calculate than NI and keeps accountants in a job doing tax returns.

    Over 65s pay income tax but not NI, this I understand goes back to a ‘promise’ back when social security was set-up that once you paid your ‘stamps’ up to retirement you won’t have to pay anything more.

    What has changed is there is no longer a forced retirement age and people live a lot longer and need more care than back in the 1940s.

    I have always supported charging NI on over 65s at a reduced rate, say 2% (the same rate as the upper earnings limit) as that rate recognises that the person has already done their contribution to earn their right to benefits and the rest is if you like to fund other things which would include the NHS.

  • Graham Evans 9th May '18 - 9:27pm

    @ Lloyd Harris I quite like your idea of charging the over 65s NI at the rate of 2%, though I assume you are referring to earned income. Moreover this would be consistent with the fact that Gordon Brown raised the NI rate by 1% to fund addition spending for the NHS. However I think this should only be a short term expedient as support is now growing for a hypothecated health and social care levy.

  • Martin Roche 9th May '18 - 11:40pm

    The only “allowances” that can be claimed are cost of business expenditure; I.e. Marketing, insurances, travel on business, IT, phones etc. It is a complete myth that the self-employed enjoy tax benefits not available to others. The self-employed are not living in some special coseted world. Show me evidence to the contrary.

  • @Martin

    Do you work as self-employed by any chance?

    And trust me, I know what can be claimed, Ive done it long enough.

    Better still ask Lloyd Harris above, he is an accountant, and any good accountant will advise on how best to utilise expenses in order to bring down your wage thus to lower your tax burden.

    There are even more perks for people working self employed temporary contracts in Europe.
    Daily International Subsistence Rates,
    Lets take my beloved Germany as an example
    72 Euros a Day Subsistence Rate
    + 167.50 Euros a Day Room Mate
    £10 a night Overnight Incidental Expenses
    45p Mileage allowance
    No receipts required.
    You could chose to stay in a hotel at 40 Euro a night, and yet still legitimately claim a further 200 Euro’s a day which you will not pay taxes on.

    I know all perks, Ive seen them all legitimately claimed, from self employed sole trader, to directors pays and Dividends and paying through umbrella companies.

    Lets not pretend it is an even playing field for the average man / women in the street, most people would be horrified if they knew how some peoples payments as expenses arrangements affords them lifestyle which they utilise by then lowering their take home pay and thus pay less Taxes.
    I am not saying there is anything illegal in it, it is all within the rules, but that does not make the rules right.
    And then people come along and want to suggest lowering contributions for the self-employed,
    Excuse me if I choke and splutter lol

  • Ron Tindall 10th May '18 - 7:42am

    I want a progressive tax system with those who can afford to pay – paying. This means changing local taxation away from just council tax, finding an alternative to business rates, opening up the property banding system so millionaires pay appropriately, AND opening up the NI system. I recognise the probems of those on low pay, but the answer is simple. If we open up NI, we can then align it to income tax, thus taking the low paid truly out of taxation. Indeed, what about rolling NI into income tax – now there’s a thought.

  • Martin Walker 10th May '18 - 7:50am

    I think the fatal flaw in this article is the sentence that says “My instinct tells me that the majority of those still working full-time beyond retirement age are doing so out of necessity; mainly the poor and the self-employed. They need the money.” I ‘m not persuaded, but in any event I don’t think we should be basing policy on instinct.

  • William Fowler 10th May '18 - 8:05am

    There is no reason why savings need to be taxed (and it must be a trivial amount of tax at current rates) so the combined rate need not apply to them. Savings are losing value compared to inflation so no justification for taxing them and small savers will have any way moved them to an ISA so already avoid tax. Hopelessly outdated things like NI and business rates need radical reform not just tinkering at the edges.

  • Peter Martin 10th May '18 - 11:07am

    @ Matt @ Martin

    Another goody is to set up a limited company and pay yourself just a minimum salary and the rest as a dividend. Then you can do the same for your domestic partner even if they don’t do very much at all!

  • @Martin

    I should apologise for my late night rant, i admit to diverging from your article that was aimed at just the self-employed to include directors pay and people who use umbrella companies.
    It seemed to me that you article was about chasing a certain type of voter, i.e. the silver voter and the middle classes “highly educated consultancy class of self-employed. People from sectors like IT, advertising and PR, film” hence the reason I expanded my comments ” I take it you would like to “extend the policy” and include those using umbrella companies and their own ltd companies.”

    I should have kept it simple and kept the discussion to just “self employed sole traders”
    Though I still maintain the point that there are significant tax and national insurance advantages to these groups, which is unfair to the average employed man / woman

    @Peter

    Agreed, the perks of the company directors. Like I say, level playing field when it comes to taxation, makes me choke

  • suzanne Fletcher 10th May '18 - 4:20pm

    very sorry I haven’t time to add to informed debate, but just to add I don’t see why over 65’s shouldn’t pay NI for NHS on whatever income from whatever source.
    if an OAP is poor, they will not have enough income (level to start paying can be set as appropriate). those that have more income will be asked to pay.
    After all we are going to be the biggest recipients of the NHS that NI is for.

  • Gordon Lishman 10th May '18 - 6:03pm

    “Intergeneration conflict” has been a Willetts theme for some time going back to his book “The Pinch”. The link between NI payments and a fund for younger people is a result of this obsession and it’s a pity that the Resolution Foundation has insisted on the link.
    I agree that NI should be extended to older workers. It is a natural result of the abolition of the mandatory retirement age which was a more important campaign.
    It’s another example of politicians seeking to link proper spending on public services with specific bits of revenue-raising instead of addressing the broad issue which is about a national debate and “settlement” on paying for good public services (see thread above on social care).

  • @Gordon Lishman

    It gets massively misrepresented in the media but lets remember that those that benefit from better pensions and higher house prices being passed on through inheritance are actually the younger generation.

    The Tory proposals at the last election on the pension would have cost non-pensioners through having to increase their pension contributions to make up for the shortfall something like £15k-£30k.

    Um… And if I remember rightly Willets was universities minister and keen on tuition fees and increasing costs for the younger generation.

    Also we – the coalition Government – abolished the child trust fund I think rightly (it was in our 2010 manifesto was a cost saving from memory as well as the Tories) – as there are higher priorities. This is a reheating of that – albeit to a much higher level.

  • Picking up on Lloyd Harris’s piece and looking through HMRC’s website, I think there is some misunderstanding of the situation.

    Employees: Currently, for people over state pension age, only employer NI contributions, at the same rate as everyone else, are required.
    Self-Employed: I can find no mention of age-related exemptions for Class 2 and 4 contributions.

    So it would seem that the Willetts’ plan was referring to employees over the state pension age. Scanning through the report, it does say:

    “Workers at or over the State Pension age currently pay no employee (or self-employed) National Insurance contributions (NICs). This exemption is now harder to justify given the significant weakening of National Insurance’s role in driving a contributory system, and leads to inconsistency in the treatment of otherwise-similar workers.” page 201

    I think the real issue with the Willetts’ report is that it seeks to establish an “NHS levy” separate to NI, ie. another tax for subsequent chancellors to ‘adjust’, also no reduction in NI to reflect the removal of the health care element from it…

  • @Matt re: “+ 167.50 Euros a Day Room Mate” [typo]
    Are you sure about that?
    I’m sure HMRC would disallow this expense 🙂

  • Peter Martin 10th May '18 - 8:53pm

    @Roland,

    The rules might be different in the UK. My accountant says that HMRC will allow what ever is “reasonable”. If you need to stay in London overnight, I’m sure that even £167.50 wouldn’t be queried. Even £300 would be OK providing you had receipts to back up any claim.

  • @Roland

    “@Matt re: “+ 167.50 Euros a Day Room Mate” [typo]
    Are you sure about that?
    I’m sure HMRC would disallow this expense 🙂”

    I am absolutely positive 🙂

    Take a look for yourself

    https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/359797/2014_Worldwide_subsistence_rates.pdf

  • @Peter Martin

    “The rules might be different in the UK.”

    You can only claim the “actual” in the UK with receipts.
    Whereas if your working abroad, HMRC have set International Subsistence rates that you can claim without receipts, apparently to simplify it for people and for HMRC 😉

    A nice little perk for some

  • @Matt – Thanks for the link, however, I can only find an entry for “Room Rate” not “Room Mate” 🙂

  • Katharine Pindar 11th May '18 - 7:02pm

    Our former Coalition pensions minister SirSteve Webb has written in a letter to the Times, ‘For those coming up to retirement, finding out that they will have to pay national insurance on their wages and pensions, will have part of their state pension frozen and face draconian limits on tax-free pension lump sums, could fatally undermine their carefully constructed financial plans. Each of these policies might be defensible in isolation if introduced in a phased way but not if imposed suddenly. Political consensus to tackle problems of intergenerational unfairness that have grown up over decades will be hard to come by unless the legitimate expectations of those close to retirement are treated with respect.’ (A seemingly moderate, measured point of view.)

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