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With the Labour government's first budget just two weeks away
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one thing ministers keep being asked about is national insurance. But what is national insurance and what's all the fuss about
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National insurance is a tax paid to the government, and according to the Institute for Fiscal Studies, IFS
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it's the UK's second largest tax, worth almost 170 billion in 2024 to 25
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The tax is paid both by workers and the self-employed on their earnings
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Employers, aka companies, also pay the tax on the way. they pay their staff. More simply, it's something of a second form of income tax
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but historically was linked to a worker's entitlement to claim the state pension
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This link is much weakened now. Right. So what do the government want to do
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During the election campaign, Labor made certain promises on tax in their manifesto
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We will not raise income tax. We will not raise national insurance. We will not raise VAT
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That is a manifest commitment. However, the party was repeat. asked during the campaign what their definition of taxes on working people was
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Crucially they haven confirmed whether the employers part of national insurance contributions or NICs was considered to fall under this category And now as Budget Day gets closer ministers from Prime Minister Kirstama to Chancellor
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Rachel Reeves and others keep being asked about their plans for the tax
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Well, why is it such a big deal? According to the IFS again, a similar tax tweak
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introducing national insurance on employer pension contributions, could raise as much as
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17 billion pounds a year for the Treasury. That's a serious sum when the government
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keeps telling us there is a 22 billion pound black hole in the public finances
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i.e. not enough money for all the UK's spending. However, critics argue the levy would be
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a tax on jobs, with employers less likely to hire new staff due to increased costs
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which would be bad for the economy, and workers looking for jobs. So, Labor can either go
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ahead and play around with NICs, making the government more money, or risk being criticised for
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appearing to break one of their manifesto commitments, and, depending who you ask, putting jobs at risk
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After all, no one said government was easy. Follow all the pre-budget news on CitiAM's free app
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