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The Chancellor, Rachel Reeves, wants more of us to work.
This is understandable, because the more people are employed, the more people pay taxes, which makes the Government’s terrible budget arithmetic seem a little less bleak.
But how? So far, most of the debate over Reeves’ budget has focused on the extent to which increasing employers’ National Insurance contributions will have the opposite effect by discouraging hiring.
If there is a problem in demand for labor, there has also been a drop in supply, as disability and illness rates have remained much higher than before the pandemic.
But let’s be charitable and look at an area where she could, if she were sensible, find a way to boost employment. They are the older workers.
The retirement age has now risen to 66 for both men and women, but what matters most from a tax perspective is when people actually retire, rather than the date they receive their state pension.
On the rise: So far, most of the Budget debate has focused on the extent to which increasing employers’ National Insurance contributions
In recent years this has been increasing. From the 1950s to the mid-1990s it fell sharply. In 1950, the average age at which a man stopped working was over 67; for a woman, just under 64 years old.
By the 1990s, that number had dropped to about 63 for a man and 61 for a woman. But this year the Office for National Statistics estimates that the average age of a man will be 65.7 years and that of a woman will be 64.5 years.
Employment fell during the pandemic, as many people decided to retire earlier than they otherwise would, but is now rising again.
So if the Chancellor wants to keep older people in paid work and paying taxes, she will be pushing to open a door. So what should she do?
There is a simple lever she could pull. It would exempt employers from paying NIC to anyone over state pension age.
Currently, employees aged 66 and over do not pay NIC. It would be a bit ridiculous if someone collected their state pension on one side and then had to pay it back (without receiving any further benefits) on the other. But if employees don’t pay, why should their employers?
There is a practical point here. Older workers still pay full income tax. If employers find that it is much cheaper to hire older workers than younger ones, they will try to find ways to encourage them to stay in the workforce.
In a quick recount, if this change to NICs helped raise the average retirement age by more than a year, overall tax revenue would increase, not decrease. It would more than pay for itself. The loss of National Insurance would be more than offset by the increase in income tax.
The story gets better. If companies are going to employ more people over 60, they will also be incentivized to retain slightly younger staff. These are people from the late 50’s and early 60’s.
The Chancellor said in her speech at Mansion House last week that she wanted idle workers back in their jobs. That’s fine, but once someone stops working, it’s hard to get them back. It is much better to keep them entrenched in the market. It doesn’t have to be a full-time job; In fact, many people at that stage in their careers don’t want that.
But you have to pay for it: there are many volunteer opportunities for older people and they make a huge contribution to society. But for a government desperate for tax revenue, it needs people to make money.
There are many other problems here. There is a danger that people underestimate how much money they will need in retirement. Older workers need to be flexible in their attitudes and younger workers need to feel comfortable working alongside them.
Companies have to learn to make the most of older talent. It is a huge task and many people are working on it. But if Reeves really wants to boost job opportunities for seniors (and help the national finances), this is a winner.
Is she smart enough to see this? If not, it’s something conservatives should take up.
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