Rishi Sunak grilled by Andrew Marr over National Insurance rise
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Under the pending hike, the National Insurance rate will increase from 12 percent to 13.25 percent on earnings between the ‘primary’ income threshold (currently £9,568 per year) and the ‘upper’ income threshold (currently £50,270 per year). Furthermore, it will jump from two percent to 3.25 percent on any potential earnings above £50,270. For employers, the National Insurance rate will jump from 13.8 percent to 15.05 percent on employee earnings above the primary income threshold.
The primary income threshold currently stands at £9,568 per year.
Analysis from AJ Bell looked at the hypothetical situation of someone who is employed with total taxable earnings of £30,000.
For 2021/22, this person would pay National Insurance at 12 percent on earnings between £9,568 and £30,000.
This would leave this individual with a total National Insurance bill of £2,451.84.
However for 2022/23, if the National Insurance thresholds remained the same but the rate rose to 13.25 percent, this person would be left with a total bill of £2,707.24.
The increase to National Insurance payments is part of the Government’s wider plan to fund its social care plans through its Health and Social Care Levy.
While many acknowledge the need for the Government to take action in regards to the country’s social care crisis, critics believe that young people are being left with the bill with this tax hike.
Laura Suter, AJ Bell’s Head of Personal Finance, outlined who is likely to benefit from the Government’s National Insurance proposal.
Ms Suter said: “Employees and employers will begin paying for Prime Minister Boris Johnson’s £12billion per year health and social care reform plans through a 1.25 percentage point increase in National Insurance rates.
“The decision to hike National Insurance rather than income tax was controversial, not least because pension incomes are not subject to National Insurance.
“This means older people who are more likely to benefit from the reforms in the short-term have largely been excluded from paying for them.
“For savvy savers, the National Insurance hike makes pension salary sacrifice more attractive, as contributions are taken from your earnings before employer and employee NI has been deducted.”
On the tax rise, Neil Lovatt, the Commercial Director at Scottish Friendly, emphasised the generational divide the Government’s decision would have.
Mr Lovatt explained: “The Government is squeezing many younger, hard-pressed families to subsidise retired millionaires, older homeowners and asset-rich pensioners.
“The biggest tax rise since the 1970s is also looking like a sharp generational transfer. The government’s priorities don’t lie with families and children but with protecting an ageing baby boomer generation. This is just robbing young Peter to pay for older and wealthier Paul.
“There is absolutely a case for protecting pensioners in poverty, but this policy is aimed at benefiting wealthier pensioners.
“A clear and obvious way to pay for this would be through Inheritance Tax, but that’s toxic for the baby boomer generation and with income tax too politically sensitive the government was left with no option but to levy the burden on young and hard working families.”
However, the Prime Ministers’s official spokesperson said the change will make “the system fairer for all” and noted that working adults above pension age will also contribute to the new levy.
They told reporters in September: “The levy will be paid by working adults including those over the state pension age.
“From April 2022, while systems are being updated, NICs rates will rise by 1.25 percent.
“Then, from April 2023, once systems are updated, the levy will be separated and the exact additional amount each employee is paying through the levy will be visible as a separate line on an individual’s payslip.
“It is at this point that working adults above pension age will contribute to the levy.”
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