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National Insurance 'unjustified'

The National Insurance system is "riddled with anomalies, complexity and a lack of cohesion" and will be unjustified if plans for a universal state pension go ahead, a think-tank has claimed.

 

The planned £140-a-week universal state pension is set to be based on residency criteria rather than how many years people have made National Insurance contributions, and so the system is no longer fulfilling its original brief, the Centre for Policy Studies said.

 

The group has called for the National Insurance Fund, which it claims has been used for indirect tax rises and to fund other areas such as green taxes and the NHS, to be merged with income tax to create a single payroll tax.

 

Those who have paid into the system, at a rate of 11 per cent of earnings between £5,720 and £43,888, and one per cent above this figure, often receive lower benefits than those who made no contributions, the group said.

 

As well as creating a high marginal tax rate for low earners, this has increased costs for companies wanting to employ more staff, according to the report, written by tax and benefit analyst David Martin.

 

Just six per cent of benefits will be funded by the National Insurance system after incapacity benefit has been phased out, it added.

 

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