How does National Insurance relate to pensions and NHS spending?

At today’s Prime Minister’s Questions, Labour leader Sir Keir Starmer claimed abolishing National Insurance would require the government to “either cut [the] state pension or the NHS that National Insurance funds”, or “put up income tax”. 

Shadow chancellor Rachel Reeves MP also posted on X (formerly Twitter): “The Prime Minister cannot say how he will pay for his £46 billion unfunded promise to scrap National Insurance.

“He can either cut state pensions or the NHS or raise income tax - which one is it?”

The relationship between National Insurance contributions (NICs) and funding for the NHS and state pensions is more complicated than these comments imply, however.

As we wrote last month, revenue from NICs is notionally set aside from other tax revenue for the purposes of NHS and social security spending.

But general tax revenue is also used to pay for these things. So in practice the amount the government raises through National Insurance doesn’t necessarily determine how much is spent on the NHS or the state pension.

We can’t say how any potential future move to abolish National Insurance entirely might be funded. Rishi Sunak did not directly respond to Mr Starmer’s questions on the topic, and the chancellor Jeremy Hunt has separately said abolishing National Insurance is unlikely to happen “any time soon”.

But it’s not necessarily quite as simple as saying reducing National Insurance would mean the government would either have to cut pensions or the NHS, or raise income tax.