§ Mr. CallaghanThe allowances given for a person's own National Insurance contributions relate primarily to the pension element in them. The effect is to make the National Insurance contribution regressive, because the contributor who is not liable to Income Tax bears the full brunt of his contributions while the better off have the impact reduced by tax reliefs, including Surtax reliefs. I propose to abolish the tax allowances for these contributions.
To withdraw the allowances completely without giving any alleviation elsewhere would be unreasonable. I propose, therefore, to couple with this reform an increase of £20 in the basic single and married allowances and in the special Income Tax allowance which is given against the earnings of a married woman. For the great majority of taxpayers who have been entitled to an allowance for National Insurance contributions of £22 the increase in tax will be a matter of shillings a year. Some men whose allowances have been £26 or £27 will pay a little mere; but there are many people whose 294 National Insurance contribution allowance is at present below £20 who will gain.
Surtax payers will pay more Surtax because the former National Insurance contribution allowances ran for surtax as well as Income Tax. But married women and widows in employment will benefit from the increases in personal allowances, as will retired people who do not pay National Insurance contributions. This will help elderly people, as will raising the income limits for the age exemption. This is a better way of doing this operation. The proposals, taken together, will cost the Exchequer £2 million this year and £1 million in a full year. I put them forward as a simplification of the existing system, and as a better way than the old system of spreading the cost to individuals of National Insurance pensions.