National Insurance as a tax on earnings
paid by employers and employees, and allows workers to qualify for certain benefits and the state pension.
You pay mandatory National Insurance if you’re 16 or over and are either:
- an employee earning above £190 a week
- self-employed and making a profit of £6,725 or more a year
You may be able to pay voluntary contributions to avoid gaps in your NI contributions.
From 6 April 2022 to 5 April 2023, National Insurance contributions will increase by 1.25 percentage points. This will be spent on the NHS and health and social care in the UK.
The increase will apply to:
- Class 1 (paid by employees)
- Class 4 (produced by self-employed)
- secondary Class 1, 1A and 1B (paid by employers)
The increase will not apply if you are over the State Pension age.
Britain’s employers are being forced to shoulder a £9bn tax rise after the government raised national insurance despite stiff opposition.
In his Spring Statement, Chancellor Rishi Sunak announced that from 6 July 2022, the threshold for National Insurance would rise by almost £3,000. This means anyone earning under £12,570 will not have to pay National Insurance from July of this year. The Institute for Fiscal Studies (IFS) calculates that when taking the rate hike and threshold increase together, the National Insurance bill will fall for anyone earning less than £35,000 for the 2022/23 tax year – compared to the previous year. An initial assessment by HM Revenue and Customs after the policy was announced calculated that 29 million workers would be worse off due to the measure.
The Institute for Fiscal Studies estimates the national insurance rise will rake in about £17.2bn in total for the exchequer from workers and employers, far more than the £6.3bn cuts for workers benefiting from the threshold change.
Defending the plan
Boris Johnson said he had “absolutely no problem” with the increase because it was “unquestionably the right thing for our country” as the health service faced growing demand and grappled with a backlog built up during the pandemic.
Mr Johnson said: “We must be there for our NHS in the same way it is there for us. “Covid led to the longest waiting lists we’ve ever seen so that we will deliver millions more scans, checks and operations in the biggest catch-up programme in the NHS‘s history. Prime minister Boris Johnson has defended the NI hike, arguing that the rise is “necessary, fair and responsible”, despite the Conservative Party 2019 election manifesto, which helped Johnson win by a landslide majority, pledging “not to raise the rates of income tax, national insurance or VAT”.
Defending the increase, Javid told Sky News that the impact of the pandemic had been unprecedented. “When we spend money on public services, whether it’s NHS or anything else, for that matter, the money can only come from two sources. You raise it directly for people today, that’s through taxes, or you borrow it, which essentially you are asking the next generation to pay for it,” he said. “I think it is right that we pay for what we will use as a country, but we do it in a fair way. The way it is being raised in the top 15% of earners, this levy will pay almost 50%. I think that is the right way to do this.”
Chancellor Rishi Sunak said the government would “not shy away from the difficult decisions” and that ministers need to “fix our social care system and slash NHS waiting times”. “It is the wrong tax at the wrong time, and people are struggling to pay their bills. This will just impact them very, very hard,” said the Labour leader, Keir Starmer. Instead, Starmer said the “general approach should be that income of all its forms should be taxed fairly” and promised to set out Labour’s plan to follow that before the next general election, due to take place in about two years.
Criticizing the plane
This plane faced angry questions from Labour MPs on the committee. Sunak admitted he would not be a “tax-cutting chancellor” despite his plans to increase the threshold for national insurance contributions and a promise to cut income tax. The chancellor has faced heavy criticism for not increasing the value of universal credit benefits by more than the planned 3.1% rate from April, despite forecasts for inflation to rise to 8% in the same month. However, he said there were sufficient alternative measures in place – including hardship funding available through local councils and support to help unemployed people to work.Company bosses said the 1.25-percentage-point rise in national insurance contributions (NICs), which workers and their employers pay, would add to severe pressure from runaway inflation and soaring business costs this year linked to Covid, Brexit and Russia’s war in Ukraine.
Shevaun Haviland, the director-general of the British Chambers of Commerce, said:
“[The] national insurance rise piles another cost pressure on top of firms at a time when they can ill afford to bear it,” “Members are telling us that energy bills are soaring while the price of raw materials are reaching levels many have never encountered before. This comes alongside vastly increased shipping costs and a squeezed labour market.”
Jonathan Reynolds, the shadow business secretary, said the figures showed the government was not on employers’ side. “The Conservatives’ decision to hike taxes during a cost of living crisis will make things even harder for businesses and families,” he said.
Welsh Liberal Democrat Leader Jane Dodds MS said: “Families in Powys are being crippled by the worst cost of living crisis in a generation, struggling to put food on the table and afford sky-high energy bills. “The last thing they need is an unfair tax raid. Yet the Conservatives are piling on the misery by breaking their promise not to hike up national insurance in a move that will hit our community hard. “Our plans would kill two birds with one stone, helping those struggling to make ends meet while giving our treasured local businesses the shot in the arm they need. Meanwhile, the Conservatives continue to harm our economy and make people’s paychecks smaller.”
Problems such as the Covid pandemic, trade disruptions, rising costs, and the energy crisis have caused increasing pressure on the people as the only solution to the Boris Johnson administration. Do we have to wait to see how much the resilience factor of the people is?