Labour’s shadow paymaster general has written to the chancellor asking him to clarify how the state pension will be financed and whether people will keep their current state pension entitlement under plans by the government to abolish national insurance.

In his letter published on Saturday, Jonathan Ashworth accused the Treasury of “refusing to explain how [abolishing NICs] would be funded”, saying it would result in a £46bn shortfall for government coffers.   

Ashworth claimed that the government’s plan announced earlier this month was “a serious threat to pensioners, who will want to know whether their entitlement to the state pension will be affected and what will happen should the tax burden shift from NICs to income tax”.    

Labour said replacing NICs revenue with a higher basic and higher rate of income tax would mean rates of income tax going up by 6.5%.    

“This tax hike would mean pensioners paying £800 more in income tax – on top of the £1,000 that Conservative tax plans are set to hit them by,” the MP for Leicester South argued.  

Ashworth asked the government if the shortfall would be made up through higher taxes, higher borrowing or spending cuts, or if alternative funding sources for the state pension were being considered.  

He also wants to know if those who have paid NICs will keep their entitlement to the state pension, and if the state pension will be means-tested under the government’s plans.  

An HMT spokesperson said: “Our long-term priority is to abolish national insurance to end the unfairness of the double tax on work.”  

The spokesperson added: “We have been clear though that this will only be done in a responsible way without compromising public services, harming pensioners or increasing tax on workers. We have begun the process because the economy has started to turn a corner, already cutting National Insurance by a third since November.”  

Following the short-lived introduction of a 1.25% health and social care levy, which was reversed by ex-PM Liz Truss in 2022, NICs have been kept at the same level until a reduction of 2% in January, with a further 2% cut due in April. It is generally assumed that only NICs on workers would be abolished, not the 13.8% levied on employers, although the Treasury has not confirmed this to date.   

NICs are currently paid by employees and employers, but not by pensioners and people who are not in work. They are paid at a lower rate by the self-employed, including partners of firms set up as partnerships. NICs contribute to the financing of state pensions and the National Health Service, although in practice, receipts from NICs and income tax are not held separately.    

Receipts from NICs are expected to be at £168bn in 2024-25, the third highest after income tax (£303bn) and value-added tax (£203bn), government documents show. In 2023-24, taxpayers spent £124.3bn on state pensions, according to the Office for Budget Responsibility.