I wrote to Chancellor George Osborne again this week, to press for a change to National Insurance to help working people, in particular those on lower incomes. It is time to look at National Insurance because it does not in reality act as an insurance scheme, contrary to general understanding.
Insurance businesses work by taking premiums from people and investing them over long periods, usually in dividend paying and other shares that grow in value substantially over time, to generate returns that are then available to those who need to claim on the scheme. Unfortunately our current National Insurance contributions are not invested this same way. They are spent year-in year-out on the current claims of those using the NHS and state pension, or lent out to other government departments for their spending.
Reform of this system could be added to the positive package of measures announced in the Summer Budget.
We need to move away from the low wage, high welfare economy we inherited from Gordon Brown. Bringing in the Living Wage, raising the personal tax allowance and positive employment conditions mean big pay rises are now on the way, and more job choice for millions of people. Free and expanded childcare for 3 and 4 years olds, free school meals, keeping mortgage rates low, Help-to-Buy schemes, and frozen fuel duties and council tax also help with many people's personal budgets.
We should add major savings reform, by reforming National Insurance so that within it a real, low cost defined contribution investment scheme is created, which people can use to supplement their entitlements under the State Pension system itself, and to make available under certain circumstances ahead of retirement age.
Credits could be offered to the lowest paid even if they don't meet the threshold for payment of traditional National Insurance, to kick off their contributions and get used to saving, and these could be substantial. The scheme could also be available to others who wanted to make a contribution from other parts of the income scale, alongside or instead of the more fiddly ISA system.
I believe this should be accompanied by tapering the threshold for payment of traditional National Insurance contributions and tapering the rate, to make the marginal incentives to work more efficient at the same time as letting people keep more of their earnings.
This can be paid for by tapers on the higher limit and rate of National Insurance obligations and entitlements for those on higher incomes.
It is as part of this overall package of measures, to increase incentives for employers to pay better wages on which people can plan for a better future, that I believe we must address the spiralling cost of employment welfare.
That's the context of the reform of tax credits which has been in the news this week, in which I am keen to find sustainable ways to protect and give opportunities to the most vulnerable. Taxpayers still spend £30 billion of borrowed money a year, subsidising employers paying low wages and often entrenching low pay and a lack of training. That's not right.
There is a quid pro quo with the major and beneficial changes we are making to business rates, corporate taxes and investment and employment allowances, to make our economy more dynamic: we do expect employers, particularly the big ones, to play their part.