NICs and sticks

How the Tories' unforced error on National Insurance has given Labour four new ways to attack them

The most annoying thing about the Tories’ “Stick with the plan that’s working/Labour hasn’t got a plan” dividing line is not the attack bit but the premise it flows from. Where, after all, is the evidence that the Tories under Rishi Sunak have a plan, or that it is working, or that they can stick to it?

For example, what is Rishi Sunak’s plan for income tax and National Insurance? What does he think about them? It’s difficult to say, because he wears his views remarkably lightly. He was the last Chancellor to propose an increase in National Insurance Contributions (NICs): the Health and Social Care Levy, announced by then-Prime Minister Boris Johnson in September 2021. But after the levy was abolished by Kwasi Kwarteng in his mini-Budget, Sunak did not attempt to reintroduce it: as Prime Minister, he has cut NICs twice, and now says that he has a long-term ambition to abolish it entirely on the grounds that it is “unnecessarily complicated”, “unfair” and “double taxation” - something he had previously, when raising the same tax, forgotten to say that he believed. 

Meanwhile, Sunak used to think that income tax was too high. As Chancellor in 2022, he announced that the basic rate would be cut from 20p to 19p in 2024. As a Conservative leadership contender later that year, he said he would cut the basic rate of income tax to 16p by the end of the next parliament. But in October 2022 Jeremy Hunt, as Liz Truss’s second Chancellor, cancelled Sunak’s timetable to cut the basic rate of income tax from 20p to 19p, and Sunak has not made any moves to reduce it again since becoming Prime Minister a few days later: indeed, Hunt has suggested (but not, by a long way, confirmed) that the abolition of NICs might be paid for by increasing income tax.

So, to summarise: Sunak chose to raise NICs and cut income tax. Then he promised to cut income tax further, with no mention of cutting NICs. Then he accepted the reversal of both a NICs increase and a planned income tax cut - leaving NICs lower than he had planned and income tax higher than he had planned. Then he cut NICs. Then he cut NICs again, while saying that he wanted to abolish it entirely and implying that income tax might rise to pay for it - and this now appears to be a bigger priority for him than his previous priority of cutting the basic rate of income tax to 16p. It is, to say the least, difficult to construct a story of a coherent approach to personal taxation here. 

But the fact that through all of this - all of this - Rishi Sunak has been able to speak about the importance of having a plan, without anyone laughing at him or even asking “OK, what’s the plan then?” is worth reflecting on. Because the fact that he has, by and large, got away with saying any old nonsense about his tax plans, and then regularly doing the opposite of whatever it was he last said he wanted to do,¹ may well be what lulled him and Jeremy Hunt into making a really serious strategic error - something I touched on in a post immediately after the Budget, but which has become clearer ever since.

The critical thing about this brand new Tory tax policy, in which it differs from previous brand new Tory tax policies, is that it is not budgeted for: it is an aspiration for the next parliament. That means that unless it is explicitly dropped, and until it is properly explained and timetabled, it functions as an unfunded tax cut. A big one, too: £46 billion, which is more or less the same amount as the tax cuts announced by Liz Truss. That gives Labour four massive new sticks to beat the Tories with, all of which put them in a much stronger position than they were previously.²

Stick one: unfunded. This is mostly a rebuttal message, but rebuttal messages are vital. People often assume that rebuttal is just about explaining why your opponents’ claims about you are wrong. It sometimes is, but there’s more to it than that. Sometimes you want to parry, and sometimes you want to punch back, harder. In the language of the playground, sometimes you want to say “Oh no I’m not”, and sometimes you want to say “I know you are but what am I?” The fact that the Tories now - undeniably - have a huge unfunded spending commitment at the heart of their plans for the next parliament means that whenever they point at unfunded Labour spending commitments, Labour can point right back.³

Independent voices such as Paul Johnson of the Institute for Fiscal Studies saying that the policy is “not worth the paper it’s written on unless accompanied by some sense of how it will be funded” are enormously helpful to Labour here. No wonder some ministers have tried to row back from the idea - but the problem with saying that it could take several parliaments, or that it is an “aspiration”, is that at that point the whole thing ceases to be a policy.

Stick two: threat. If a tax cut is unfunded, then we don’t know how it will be paid for - but we do know that it will have to be paid for. And there are no no-loser ways of finding £46 billion. The Conservatives haven’t yet said where the money will be coming from, because they don’t know. The most obvious way would be to merge income tax and NICs, and Jeremy Hunt has hinted at this. But the problem with this is that it implies a tax rise for pensioners. You might think that’s a fair choice, but you are not a political party whose electoral base, such as it is, is increasingly pensioner-based.⁴ Sunak has suggested squeezing benefits to pay for it, but doing this to the tune of £46 billion is completely implausible - and as it stands, there is no detail of how it could happen.

There are, of course, other ways of doing it. You could cut the NHS. You could cut pensions. Those options, combined with the fact that National Insurance is widely perceived as a tax for funding the NHS and pensions, are behind this community-noted tweet by Rachel Reeves:

All’s fair in love and community notes, and I hated them before Labour started getting them, but this is a bit silly. NICs do fund pensions and the NHS, because all tax goes into a big pot and all government spending comes out of it. This is not a claim about ring-fencing, even if it looks like one at first glance. And anyway, what’s the next line? You could indeed abolish NICs and keep the NHS and pensions fully funded. For example, you could make massive cuts to the education and defence budgets instead. This does not help.

Every time the Tories say they will not use the NHS, or pensions, or education, or defence, or whatever to fund the abolition of NICs, they are inviting the question: OK, what then? And until they answer it, the threat message is fair enough, and Labour will keep punching the bruise on pensions:

Stick three: Truss. The fact that the cost of NICs abolition is so close to the cost of Liz Truss’s tax cuts is an absolute gift to Labour. Without wanting to discount the impact of Rishi Sunak’s various qualities on Tory poll ratings over the last 18 months, Liz Truss is the biggest single reason the Conservatives are on course to lose the next election, and there is nothing Labour wants more than reasons to talk about her, and to associate Sunak with her. And now Sunak has given them an excuse to do it. No wonder Labour is making the connection, in graphic after graphic.

Stick four: no plan. The Tories’ whole strategy has been “we’ve got a plan, they haven’t”. But now, on their most important tax policy, they haven’t got a plan either. That makes attacks like this one much, much harder to make effectively:

Paste Jeremy Hunt or Rishi Sunak into that graphic now and it works just as well. They had a winning issue, and they’ve turned it into a score draw. You can’t afford a score draw when you’re 20 points behind.⁵ Honestly, what were they thinking?

All of that means that principled arguments about double taxation don’t matter. So far as the brute politics of the general election are concerned, the policy merits of abolishing National Insurance are completely beside the point. If you ask Labour why they don’t want to abolish a pernicious system under which “you pay tax twice on income from work, but income from other sources is only taxed once”, they have two easy answers: first, that it only appears to have occurred to the Tories that this is bad in the last fortnight, and second, that to do it you have to find £46 billion from somewhere.

Given the state of the polls, it would be wrong to say that the Tories’ promise to abolish NICs is an election-losing error. But it leaves them in a weaker strategic position than they were before they said it. And, given where they were before they said it, that’s quite an achievement.

1. Obviously, “got away with” is an overstatement. Look at the polls. But Sunak hasn’t, until now, been under huge public pressure over being all over the place on NICs and income tax.

2. Obviously, they were in a strong position already. Look at the polls. But this still makes them stronger.

3. Labour denies, of course, that it has any unfunded spending commitments, and it has long lines of explanation about why this is the case and how everything it has promised is paid for and how they have tough fiscal rules. They will keep using those lines. But saying “Seriously? They’ve got £46 billion of unfunded spending commitments” is so much easier.

4. Or, if you prefer, decreasingly non-pensioner-based: Sam Freedman pointed out this week that in the most recent national voting intention poll by Deltapoll, the Tories were winning just 7% of the votes of under-35s.

5. Wait, what sport is this metaphor about?