Boris Johnson has doubled down on a controversial planned tax hike to boost health funding, in a refusal to placate some Tory MPs concerned by the cost-of-living crisis.
The PM has been facing pressure from within his own party to scrap or at least delay the National Insurance (NI) increase of 1.25 percentage points - the equivalent to a 10 per cent increase in deductions from pay packets across the country from April.
Mr Johnson and Mr Sunak put on a united front as they made a firm commitment to go ahead with a controversial tax rise designed to tackle the Covid-induced NHS backlog and reform social care.
Writing in The Sunday Times, Mr Johnson and Chancellor Rishi Sunak insisted that it is right to follow through on the “progressive” policy.
“We must clear the Covid backlogs, with our plan for health and social care - and now is the time to stick to that plan. We must go ahead with the health and care levy. It is the right plan,” they said.
What is National Insurance?
National Insurance is a tax on earnings paid by employees, employers and the self-employed who pay it on their profits.
National Insurance is used to pay for the NHS, state benefits and the State Pension.
National Insurance increase in a nutshell
In real terms, the hike means that employees, employers and the self-employed will pay 1.25 pence more on the pound for National Insurance Contributions.
James Andrews, Senior Personal Finance Editor at money.co.uk, said: “With NI increasing by 1.25% points in April, it’s no surprise that many UK workers think this means their payments are going up by only a fraction.
“However, that figure relates to the rate, and this means that for most people contributions are actually increasing by more than 10%.”
Increased amounts
If you earn less than £9,564 a year then you don’t have to pay National Insurance and the new levy does not apply to you.
Salary and new National Insurance Contribution
- £20,000 - will pay an extra £130 a year (£10.80 per month)
- £30,000 - will pay an extra £255 a year (£21.25 per month)
- £50,000 - will pay an extra £505 a year (£45.80 per month)
- £80,000 - will pay an extra £880 a year (£73.33 per month)
- £100,000 - will pay an extra £1,130 a year (£94.16 per month)
Each of these increases equates to an increase of around 10.4%.
From April 2023, National Insurance will return to its current rate, and the extra tax will be collected as a new Health and Social Care Levy.
This levy will also be paid by people over State Pension age who continue to work.
“With the country in the midst of a cost of living crisis, the increased rate is set to affect millions of workers, particularly those on lower wages. For those people, the rise comes at a bad time, after research published last month showed that average personal debt in 2021 more than doubled in the space of just 12 months to a whopping £25,879 a person,” James said.
He continued: “This extra charge kicks in at exactly the same time as the expected 50% rise in the energy price cap that is set to add hundreds of pounds to the cost of heating our homes.”
You can read more about the changes to NICs in the new Build Back Better: Our Plan for Health and Social Care document on the GOV.UK website here.
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