National Insurance contributions are set to increase this year as part of government plans to fund health and social care.
Boris Johnson announced a £12 billion-a-year levy to help the struggling NHS and social care sector back in September last year.
In the 2019 Tory election manifesto, the party ruled out increasing National Insurance (NI) if returned to power - but the party has u-turned on its plans as part of its pandemic recovery effort.
A new health and social care levy, based on a 1.25 percentage-point increase in NI contributions, is set to be introduced from April.
The tax hike is designed to tackle the Covid-induced NHS backlog and reform social care.
Why is National Insurance being raised?
The government is introducing the National Insurance rise as part of its plans to overhaul the social care sector and fund the biggest catch-up programme in the history of the NHS in England.
The NHS waiting list is at an all-time high after months of lockdown, while it is widely understood that the social care sector has been in need of substantial reform for several years.
The government has pledged to invest £36 billion over the next three years to help the NHS recover from the coronavirus pandemic and reform the adult social care system so people no longer face catastrophic care costs.
The majority will go to the NHS, with social care receiving £5.3 billion over the next three years.
When will National Insurance contributions go up?
The government says the changes will come into force from the beginning of April this year.
How will the tax hike affect you?
Funding for the NHS and social care will be provided through a UK-wide health and social care levy, based on national insurance contributions paid by all working adults, including those over the state pension age.
Under the current proposals agreed by Cabinet and voted for by MPs, National Insurance will by 1.25 percentage points for workers and employers from April.
From 2023, it is due to drop back to its current rate, with a 1.25 per cent health and social care levy then applied to raise funds for improvements to care services.
Under the new levy a typical basic-rate taxpayer earning £24,100 would pay £180 more a year, while a higher-rate taxpayer on £67,100 would pay £715.
Will it definitely go ahead?
Recent reports suggested Mr Johnson may be “wobbling” over the increase.
However, No 10 has denied this, saying the government is “fully committed” to introducing the tax rise in the spring.
A Downing Street spokesperson said on Friday: “The PM and chancellor are fully committed to introducing the health and social care levy in April.
“We’ve spoken before about why we are doing that, in order to give the NHS the funds it needs to tackle the backlog that has built up, as well as tackling the long-term issue of social care. So as I say, we are committed to introducing that in April.”
The spokesman said: “I would point back to the fact that this is something that we’ve legislated for to come in April, and again, we’ve been clear with the rationale for it.”
Asked if he could guarantee no U-turns on the policy, he added: “As I say, we are introducing it in April.”
What about the cost of living crisis?
Political opposition to the change has come from all sides of the Commons, as MPs fear the impact that increasing financial demands could have on stretched household budgets.
Inflation is at a 30-year high after the coronavirus pandemic, and the energy price cap is due to increase in the spring, possibly increasing bills by 50 per cent.
The Resolution Foundation recently said each household can expect outgoings to increase by £1,200 this year.
Labour leader Sir Keir Starmer said it would be “the wrong thing to do” to raise national insurance in April.
Sir Keir said: “The PM needs to act on this. We’ve got a very serious issue here with everybody facing prices going up – whether that’s fuel, energy bills at home, inflation going up to something like 6 per cent, the worst it’s been since the John Major years – and at that very moment, Boris Johnson and his government want to impose a tax hike on people in April.
“It was the wrong thing to do and we argued strongly it shouldn’t have happened. So I’m glad if anybody is reconsidering this, but it should never have happened in the first place.”
Former minister Robert Halfon said the government should look at different ways to support struggling families, including possibly cutting overseas aid, rather than ploughing ahead with the National Insurance rise.
The Tory chairman of the Commons Education Committee told BBC Radio 4’s Today programme that ministers should look at introducing “windfall taxes on businesses” or “possibly… increase capital gains tax” to replace the £12 billion per year that the new levy is forecast to produce.
