Jeremy Hunt has accused Labour of frightening pensioners with fake news stories about the proposed abolishment of national insurance.

In the spring Budget, the Chancellor announced a 2p cut in national insurance and outlined a “long-term ambition” to abolish it altogether.

Labour’s shadow chancellor Rachel Reeves said the Government is “planning to pick pensioners pockets”, as she argued the policy would amount to a £46 billion blackhole.

During Treasury questions on Tuesday, Mr Hunt ruled out merging both national insurance and income tax to fund his ambition.

Meanwhile, Prime Minister Rishi Sunak has previously insisted the state pension would not be cut to cover the costs.

In a back and forth in the Commons, Ms Reeves said: “At the Budget, the Chancellor set out his intention to abolish national insurance, a £46 billion annual commitment with no clear plan as to how it would be paid for.

“One way to do it would be to merge income tax and national insurance, does the Chancellor agree with analysis from the House of Commons library, which shows merging these two would increase income tax by 8p in the pounds?”

Mr Hunt replied: “Which is why it is not our policy.”

Ms Reeves then said: “That is strange because the day after the Budget, the Chancellor told Sky News and I quote ‘you can end that unfairness of taxing work, you can merge income tax and national insurance’.”

She added: “A retired pensioner, with an average occupational pension income of £198 a week, would pay an additional £738 per year in tax. Isn’t this why the Conservatives won’t come clean, because they are planning to pick pensioners pockets to fund the abolition of national insurance?”

Mr Hunt replied: “Our policy is to abolish employees national insurance and that means that we want to bring it down to zero.

“And if Labour’s strategy is to win the election by frightening pensioners, with fake news stories, then I would just say that Britain deserves better.”

Shadow Treasury minister James Murray criticised the Government for being “a Parliament of record tax rises”.

He said: “The Conservatives’ decisions in this Parliament mean the average family will face a tax bill that is £870 a year higher. Pensioner taxpayers will pay £960 a year more. To quote the director of the Institute for Fiscal Studies, this remains a Parliament of record tax rises.

“Higher taxes, squeezed living standards and weaker public services. Does the minister understand why the country has lost confidence in the Conservatives when that is their legacy?”

Treasury minister Nigel Huddleston replied: “There are many people in this country who will remember the abysmal performance economically of the last Labour government, when the tax free allowance for example was £6,475, it’s now £12,570.

“Over one-and-a-half million people have been taken out of paying income tax altogether. We have a focus on this side, now the economy is turning we want to put more money back into people’s pockets. That’s exactly what we are doing with the national insurance cuts and other measures and I’m surprised (Mr Murray) doesn’t welcome that.”

Later in the session, Mr Hunt insisted that “inflation falls by design and not by accident”.

He said: “The biggest single thing we can do to help people with cost-of-living pressures is to bring down inflation, and that seems to be something that escaped the shadow chancellor this morning when she said it wasn’t a big deal to get inflation down to its target.

“It’s a very, very big deal for families facing a cost of living crisis, and she needs to know that inflation falls by design and not by accident.”

Labour MP Nadia Whittome (Nottingham East) said that inflation coming down is “little comfort to my constituents, who are still struggling to make ends meet”.

Mr Hunt said she “might want to talk to a few more” of her constituents, because inflation coming down is “the biggest single thing we can do to deal with cost of living pressures”.

Ms Whittome could be heard to shout: “Prices are still going up.”

Elsewhere in the session, Mr Hunt said “there is absolutely no hiding place” for companies that received contracts for faulty or undelivered PPE during the pandemic.

Shadow Treasury minister Darren Jones told the Commons: “The only productivity improvement we’ve seen from this Government is the awarding of wasteful contracts.”

He added: “There is still £1 billion worth of unresolved PPE contracts that this Government awarded which have not been delivered on, but only one of them – PPE Medpro – is facing legal action. Why is the Government not taking legal action on the other companies that have not delivered on their contract to the members of the public?”

Mr Hunt replied: “Let me be clear, there is absolutely no hiding place for anyone whether they are connected to the Conservative Party, the Labour Party or any other party, if they have defrauded the taxpayer we will go after them.”

Mr Jones then said: “The Government knows that these contracts haven’t delivered but they won’t reveal the names of the companies and the contracts that have not delivered. If there’s no hiding place, why would the Chancellor not name them today?”

Mr Hunt responded: “Because we are taking legal action and as (Mr Jones) knows full well when you’re taking legal action that is information that belongs to the police.”