In the UK, National Insurance was introduced as a means of paying for health, welfare and pensions. The original 1911 act created a fund that was paid into by workers, employers and the Treasury and from which illness and unemployment benefits were made. Later, the scheme was extended to cover pension payments and to fund the NHS. However, my understanding is that National Insurance payments go into the general tax pot and are not now separated and earmarked for their original purpose, partly because the spending on the welfare state is much higher than the amount raised by National Insurance.

Am I right in thinking that the intention of National Insurance was to create an independent fund, separate from other tax revenues and dedicated to health, pensions and welfare benefits? I can't find anything online that explicitly states this.

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    It appears the accounting may be slightly more complicated than you think, based on sources such as assets.publishing.service.gov.uk/government/uploads/system/… the NIF surplus is (at least notionally) invested in interest-paying government securities, so not treated as general taxation the way, say Vehicle Excise Duty is.
    – origimbo
    Feb 14, 2022 at 5:49
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    One of the problems as I understand it with reporting on receipts vs outgoings is that the UK government does not separate reporting of state pension costs from civil servant pension costs. While the former should come from NI, the latter should not.
    – Jontia
    Feb 14, 2022 at 8:48
  • @origimbo That's an excellent resource! It lead me to this: en.wikipedia.org/wiki/National_Insurance_Fund which states that the National Insurance Fund is separate from the Consolidated Fund and that contributions are not available for general expenditure. Also "The NIF are used to pay for social security benefits such as state retirement pensions, but not for the means tested Pension Credit and Tax Credits. National Insurance contributions also provide a small part of the funding for the public healthcare systems in the UK" Feb 14, 2022 at 10:49

1 Answer 1


After being pointed in the right direction by origimbo's link to the National Insurance Fund Accounts for 2021, I think I've done enough research to answer my own question.

I asked because this question reminded me that many journalists and commentators in the UK regard National Insurance as an outdated stealth tax with the implication that NI payments go into the general taxation pot. This is not the case. There is indeed a separate National Insurance Fund:

The money is held in the National Insurance Fund (NIF), separate from the Consolidated Fund. Contributions are not "taxes" because they are not directly available for general expenditure by the government.

The Consolidated Fund is the main bank account of the government. General taxation is taxation paid into the consolidated fund and general spending is paid out of the Consolidated Fund.

The CIPP has a brief history of National Insurance which states:

The National Insurance Act 1911 formed the basis of NI as we know it today, albeit on a considerably different basis. The fundamentals, however, remain unchanged, as both employees and employers have always had to pay NICs and the NI Fund always granted employees entitlement to certain benefits.


There were two individual schemes at that point in time, one dealing with health and pension benefits and the other associated with unemployment benefit. The former was run by trusted societies and unions whilst the latter was a scheme controlled solely by the government. This soon changed with the arrival of the ‘welfare state’ in 1948, which heralded the homogenisation of the separate stamps resulting in one singular stamp to cover all benefits.


in 1975 the stamps became redundant as contributions were no longer paid at a blanket flat rate that was applicable to all. Instead, NICs (national insurance contributions) were calculated based on the level of earnings an individual received and were collected via PAYE, at the same time as income tax.

The income of the NIF consist of contributions from employees, employers and the self-employed, plus interest on its investments. The NIF are used to pay for social security benefits such as state retirement pensions, but not for the means tested Pension Credit and Tax Credits. National Insurance contributions also provide a small part of the funding for the public healthcare systems in the UK however the Government determines the total allocation for health each year.

According to this House of Commons briefing paper,

In every year since 2009-10, payments from the National Insurance Fund have been greater than contributions made. As a result, over the last five years the Fund’s balance has shrunk from a £50 billion peak in 2009, to around £22 billion today (May 2014). The latest figure is equivalent to 25% of annual benefit spending.

The CIPP claims that

the state pension is predominantly funded by ‘live’ NI contributions

So clearly, the NIF is not the sole source of benefits or health spending. I'm not sure if that was the intention of the Beveridge Report, I guess that's a different question.

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    While I see the point you're making in the opening paragraph, even if the funds do not go into general taxation it does not necessarily negate the idea of NI as a "stealth tax" because it does hide the headline rate at which government removes money from individuals based on their earning.
    – Jontia
    Feb 17, 2022 at 8:49
  • @Jonita I take your point, governments have often claimed that they haven't raised tax when they've kept income tax untouched but increased NI. But I think the attention that the Health and Social Care Levy has had argues against that. Everyone is aware that they are losing another 1.25% of their income, the papers have been full of it en.wikipedia.org/wiki/Health_and_Social_Care_Levy Interestingly, the HSCL starts off as a NI payment but becomes a separate, hypothecated tax in 2023, I wonder if it will go into the NI Fund or not? Feb 17, 2022 at 12:12
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    I made a similar comment on a post a while back, assuming you're in the UK, ask yourself and ask your friends what the basic and upper rates of taxation are. If they say 20% and 40%, then NI is stealth tax. If they say 33.5% and 43.5% then they at least are paying attention. Even when people know about their own NI, I often find lower rate payers do not know that NI drops around the point Income tax goes up.
    – Jontia
    Feb 17, 2022 at 12:19

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