The levy, which will raise £12billion a year between now and 2025, will impose an average bill of £500 a year on ordinary working families who are already feeling the pinch as inflation takes hold
Image: Frankie Mills)
The government is under pressure to shelve April’s National Insurance tax hike as tens of thousands of households face a financial crisis this year with the soaring cost of living.
The tax rise, which kicks in this April, means workers will be charged a higher rate of National Insurance at 1.25%.
Under it, the average worker will pay an extra £255 a year in taxes.
But it comes as inflation hits its highest in a decade at 5.4% – with everything from food to used cars and utility bills hitting new highs.
Meanwhile 15million homes are facing an escalating energy bill crisis from April when the price cap – the maximum amount energy suppliers can charge customers – will rise.
Despite calls to suspend it, Boris Johnson looks set to plow ahead with the increase from the start of the new tax year.
Ex-Brexit manager Lord Frost yesterday the decision, describing the £12billion tax hike as “never necessary or justified”.
He said: “Given the new pressures on energy prices and inflation, it’s even more important now to scrap these tax increases and focus on getting the economy growing again. Allowing people to keep more of their own money is always the best way.”
Brexit secretary David Davis has also warned the National Insurance rise would remove about 10% of the disposable income of “ordinary families” and was based on the “wrong data”.
Mr Davis told BBC Radio 4: “It was a judgment made on, frankly, quite a lot of wrong data.
“They didn’t know at the time that by April we would have the highest inflation rate in 30 years, they didn’t know that interest rates would be going up, council tax would be going up, the fuel price is about to jump by £700 a year for the average family. Therefore, they didn’t know quite what pressure there would be on ordinary people.”
Official figures published last week showed that inflation soared to a near 30-year high of 5.4% in December, while an energy price cap rise in spring is set to stretch household budgets further.
The £36billion that the Treasury forecasts the extra National Insurance contributions will provide has been earmarked to clear the NHS backlog and then to fund social care improvements.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said the increase is ill timed.
“Now is not the time for a tax hike: the National Insurance rise in April needs to be shelved. The spring is already going to be an agony of price rises, with every last penny being squeezed from our budgets. The government shouldn’t be tightening its grip on our finances at a time like this.
“There’s no doubt that the NHS and social care need the additional funding, but tax hikes weren’t considered during the peak of the health crisis, and they shouldn’t be brought in at the peak of a cost of living crisis either.”
The rise is expected to hit the lower earners hardest, because it kicks in at lower income levels than income tax, and it places a heavier burden on lower earnings.
It’s also only charged on earned income, which means it doesn’t fall equally across workers.
Coles added: “Shelving the NI rise would stop the government from adding to injury, but it also has the power to intervene to stop energy price rises tipping families over the edge financially.
Can the government justify a higher tax in the middle of a cost of living crisis?
“We can still hold out hope that something comes from all the talks the government is said to be having with the energy industry.
“It also needs to constitute more than a boost to the Warm Homes Discount in its current guise, because although it supports those n lower incomes, it is currently paid for entirely by other energy customers.”
How much more will I pay in tax?
From April 2022 workers will pay an extra 1.25% tax.
This will then turn into a health and social care levy from 2023, which all employees will contribute towards – including pensioners.
Under it, the average worker on £30,000 will pay an extra £255 a year in taxes – equivalent to just over £2,700 a year. An employee on a £20,000 a year salary will pay an extra £130.
Someone on £40,000 will see their National Insurance contributions go up by £380 a year – to £4,032.
A worker on £50,000 will shell out an extra £505 a year – to £5,357.
And someone earning £100,000 will pay an extra £1,130 a year – taking their total contribution to £7,010.
People earning under £9,564 a year, or £797 a month, don’t have to pay National Insurance and won’t have to pay the new levy.
All working adults, including those over the state pension age who are still employed will pay the 1.25% levy.
National Insurance was introduced in 1911 to provide a fund for workers who had lost their jobs or who needed medical treatment. It is now used to pay for the NHS, benefits and the state pension.
The money goes into a “ring-fenced” fund – which means that it has to be used for these purposes – but the government can borrow from the National Insurance fund to pay for other projects.
This extra money, according to the government, will then go on social care only.
- If you earn £20,000, you’ll pay an extra £130
- If you earn £30,000, you’ll pay an extra £255
- If you earn £50,000, you’ll pay an extra £505
- If you earn £80,000, you’ll pay an extra £880
- If you earn £100,000, you’ll pay an extra £1,130
George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.