Prime Minister Boris Johnson is said to be considering increasing National Insurance by one percent. The mooted tax hike is designed to pay for social care and cut NHS waiting lists, but will disproportionately hit younger, lower-paid workers and has caused fury.
Increasing National Insurance bills by one percent would see the average employee on £30,000 paying an extra £204 a year in tax. That would take £17 out of their pay packet every month, according to calculations by Hargreaves Lansdown for Express.co.uk.
This is on top of the £2,452 they already pay in Class 1 NI contributions. It would lift their total NI bill to £2,656 a year.
The increase will come as a major shock as workers often overlook the impact of National Insurance on their earnings, focusing on income tax instead.
That attitude will change overnight if the Government does announce an increase next week, as it battles to plug the shortfall in state finances.
National Insurance is charged as a percentage of income, so higher earners will pay more.
An employee earning £50,000 would pay an extra £404 a year if NI is hiked by one percent.
It would lift their total NI bill to £5,256 a year, when added to the £4,852 they already pay.
A worker earning £100,000 would pay an extra £899 a year, if the NI hike is applied. Given that they already pay £5,879, their total annual National Insurance bill would rise to a thumping £6,778 a year.
This is on top of the other taxes people already pay, including income tax, council tax, VAT, capital gains tax, inheritance tax, and so on. Many of these may also rise in the months ahead, to fund Covid bailouts.
The actual NI increase could be even higher, as reports suggest Boris Johnson may force through a higher increase of 1.25 percent.
NI was designed to pay for the NHS, unemployment benefit, sickness and disability allowances, and the State Pension.
Boris Johnson could try to make the NI increase more palatable by arguing that it will fund these key areas, but in practice governments have raided NI to cover general spending.
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Sarah Coles, personal finance analyst at Hargreaves Lansdown, said taxpayers face a nervous wait to see if Boris Johnson will increase NI given the likely voter backlash.
“We’re also waiting to see if the Government has any other tax tricks up its sleeve to help balance the books after the highest peacetime spending on record.
“If this is the first of a wave of tax hikes, it’s going to be a bitter blow for anyone who felt they had made it through the worst the pandemic could throw at them,” she said.
By targeting NI, the Government is hitting younger people, because pensioners do not pay NI on earnings. “It’s also targeting lower earners, because NI kicks in significantly before income tax does,” Coles added.