As the government announced on 7th September 2021, as of 6th April 2022 National Insurance (NI) contributions will increase by 1.25%. The increase is planned to be a temporary measure to both the main and additional rates of Class 1, Class 1A, Class 1B and Class 4 National Insurance contributions for the 2022 to 2023 tax year. Moving forward, as a new tax year beckons in April 2023, the increase will be replaced by the Health and Social Care levy, which will be at the same rate as the NI hike. From April 2022, those earning under £9,880 a year will not have to pay NICs and will not have to pay the new levy.
In a recent article in the Sunday Times, PM Boris Johnson and Chancellor Rishi Sunak claimed this route was the best way forward for the UK, whilst also clearing the NHS backlog attributed to the pandemic and the pressures caused. Whilst confirming the tax rise, Mr Johnson and Mr Sunak described themselves as ‘tax-cutting Conservatives’, despite a 71-year high in taxes in the UK. The NI increase is set to bring in an additional £12 billion to the government, which will go some way in clawing back the huge spending and stimulus packages during lockdown.
However, there have been huge calls across parliament to scrap the increase in National Insurance, especially with the projected spike in inflation hitting 6% in early 2022, according to the Bank of England. As well as this, there is also the huge surge in energy prices expected to come into effect in April 2022 also, with a predicted annual increase of more than £600 for the typical UK household. We break down the implications of the rise in NI, the calls for it to be shelved, and the effects on struggling families and individuals as the cost of living grows drastically.
How Have Politicians Reacted To The Rise In National Insurance?
As with most policy or legislative changes in government, there have been calls for the rise in NI to be reversed from not only opposition MPs, but also from senior Tory MPs who are afraid that working families will be pushed further into poverty. Robert Halfon, the Conservative MP for Harlow, claimed, “Ministers should make the cost of living their number one priority. Money for the NHS could instead be raised from the taxes on capital gains or by raising taxes on oil companies.
Robert Jenrick, the Conservative MP for Newark and Former Housing Cabinet Secretary, stated, “Alleviating the cost-of-living challenge requires us to confront hard realities. First, it means recognising the need for the Government to intervene to help those facing brutal decisions as to what they must do without. But these should be targeted measures that are focused on low- and middle-income families. The size of the state is already the largest in my lifetime, and growing.”
Labour’s Shadow Levelling Up Secretary, Lisa Nandy, demanded the government, “to rethink the planned rise and that Labour would do everything that we can over the next few weeks to try and appeal to Tory MPs’ consciences. You can’t possibly hit people with more taxes at the moment. It’s just simply not possible for a lot of people to survive.”
How Will The National Insurance Increase Affect The Public?
Many Tory MPs in favour of the rise, called it a progressive measure due to higher earners paying more. However, earners of £100,000 a year could end up paying proportionately less in National Insurance than those on middle incomes (£30,000-£50,000). According to Tax Calculator UK, those on a salary of £100,000 a year will pay just 7% of their overall salary in National Insurance Contributions (NICs) which is equal to someone on £20,000 a year.
A person earning £50,000 a year will pay £5,086 a year in NICs alone come April which equates to 10% of their gross salary, whilst those on £30,000 a year will pay 9% of their gross salary in NICs.
It remains to be seen whether the government will follow through with the National Insurance rise, amidst calls from the public, politicians, unions, and businesses to scrap the rise at a time when families and people need to be protected. The government have also recently written off over £4 billion in fraudulent COVID loans, as well as the rather hidden disclosure in their annual report that the Department of Health & Social Care incurred over £8.7 billion in losses over the past year. This was largely attributed to faulty and unusable PPE equipment after the awarding of billion-pound contracts to many companies linked to Tory MPs. Many people are not happy, especially at a time when the opinion of the current government is shockingly low, and the rise in National Insurance almost certainly won’t change that.
We hope this has outlined to you how the National Insurance increase will affect you, should it come into force in April 2022. If you require any further information on other government tax schemes, or anything accounting related for that matter, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.