National Insurance hike being considered by Rishi Sunak to pay for care – ‘not the way!’
Currently in the UK, NI contributions are only paid for by those under the country’s state pension age of 66. If such a proposal was to be accepted by Parliament, the average employee NI rate on earnings below £967 per week could potentially rise from 12 percent to 13 percent. The proposal to increase employee NI rates has received praise from certain quarters to boost the attractiveness of salary sacrifice pension contributions.
However, Prime Minister Boris Johnson and Chancellor Rishi Sunak have also faced accusations that they will end up waging an “intergenerational raid” on younger workers as they will be impacted harder by the proposal.
Tom Selby, a senior analyst at investment platform AJ Bell, believes hiking NI contributions is the easiest and quickest way to address the health and care sector’s long standing crisis.
“After decades of prevarication by successive governments, the coronavirus pandemic may be the crisis that finally forces politicians to take meaningful steps to address the UK’s long-term care crisis.
“It is not yet clear what Prime Minister Boris Johnson’s long-term care solution will look like. Hiking National Insurance contributions – perhaps from 12 percent to 13 percent for employees – would be the simplest way to fund this reform as it utilises the existing tax framework.”
Despite his support for the proposal, Selby is cautious of the detrimental effect it would have on younger workers in the UK and aware Johnson will be breaking a senior pledge in the Conservatives manifesto last election, which will further upset public support.
He said: “However, it would also break a central Conservative manifesto commitment and leave the government open to accusations of an intergenerational raid, with younger people paying for reforms which immediately benefit older people, most of whom won’t be subject to National Insurance.
“If NI rates are increased then salary sacrifice pension contributions – which benefit from both income tax and NI relief – will become more attractive.
“The government may try to badge this as a ‘social care levy’ separate to National Insurance contributions. This would, on the face of it at least, keep its pledge not to raise NI rates intact – although whether or not voters would see it that way remains to be seen.”
Among the organisations criticising the government’s reported proposal are the Resolution Foundation, an independent UK think tank dedicated to improving the standard of living for low-and middle income families.
While the foundation praised Westminster for attempting to address the country’s social care crisis, it expressed concern over how the government was planning to do so.
In a public statement, the Resolution Foundation stated: “The government’s plan to massively increase investment in social care – and using tax rises to pay for this – is a welcome step in the right direction. The failure to reform the system earlier has been devastatingly exposed during the Covid-19 crisis.
“But raising National Insurance is not the way to do it, as this disproportionately loads the costs onto younger people and lower-paid workers who have borne the brunt of this recession.”
Specifically, the think tank took issue with younger people, who have been adversely impacted by the economic downturn resulting from the pandemic, bearing responsibility for paying more towards social care reform.
The Resolution Foundation added: “Lower earners would also have to pay more because you start paying NICs when you earn £9,560 – whereas you start paying income tax at £12,570.
“Additionally, if employer NI rises, then this would further incentivise people to be self-employed (where no employer NI is due) rather than employees, an unjustified tax break that the Chancellor said last year he wanted to remove.
“Under a planned NICs rise, a 21-year old earning £20,000 would pay £104 in tax, whereas a 66-year-old earning £50,000 would pay no more tax. That is brazenly unfair.”
Other institutions, including the Institute of Economic Affairs, also expressed their opposition to the one percent hike on NI contributions.
Professor Len Shackleton, Editorial and Research Fellow at the free market think tank, said: “Hiking National Insurance will be yet another burden on working age people at a time when jobs are insecure, inflation is rising and wages are squeezed.
“Much of the public may believe that National Insurance pays for the NHS, and social care would just be a natural addition. But NI is not ringfenced and is simply an income tax by another name, albeit with different exemptions, starting points and arbitrary changes in rates which don’t coincide with tax bands.”
Express.co.uk has contacted the Treasury for comment on the reported proposals.
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