UK to increase National Insurance Contributions

  • The Telegraph 3 September 2021

    Bombshell Tax Rise for Social Care 

    Manifesto-busting plan will see even low earners paying hundreds of pounds more a year

    Taxpayers will pay hundreds more in National Insurance contributions every year under bombshell Government plans to raise rates as a means of funding social care, the Telegraph revealed last night.

    But how much more will you pay?

    Boris Johnson is expected to abandon the Conservative manifesto pledge not to raise income tax, VAT or National Insurance and has plans to raise the main rate of NI by 1pc or 1.25pc to ease the care crisis. Policy makers are reportedly at logger heads over the size of the rate increase, expected to hit close to 30 million people.

    National Insurance is charged at different rates on different bands of earnings. Self-employed workers are also treated differently.

    An employed worker earning £60,000 a year would pay £504 more a year in NI if the main rate increased from 12pc to 13pc, and the upper NI rate was raised from 2pc to 3pc. They would pay £630 more if it went up to 13.25pc and 3.25pc.

    Someone on a £40,000 salary would pay £380 more than they do today if the rate is increased by the higher amount. 

    A lower earner on £20,000 a year would pay between £100 and £130 more a year, according to analysis by accountants Blick Rothenberg.

    Big earners on salaries of £80,000 or £100,000 would pay between £700 and £880, and between £900 and £1,130 respectively, depending on the size of the rate increase.

    Most employees pay nothing on the first £184 they earn each week and then 12pc on the rest, known as class one NI. Earnings of more than £976 a week are deducted at a rate of 2pc.

    Upping the rate on "class one" contributions by one percentage point would raise close to £4.5bn in additional revenue each year, according to Government forecasts.

    In return Boris Johnson is expected to the cap the amount an individual will ever pay in social care costs – possibly around £60-80,000 – and boost NHS funding to clear backlogs caused by Covid.

    Under the current system anyone with personal wealth of £23,250 or more, including the family home, fails the means test for state funded care and can easily spend £1,000 a week for a space in a private home.

    It is a long awaited bid to solve the funding dilemma facing the adult social care sector, highlighted by the increasing pressure on the so-called “sandwich generation” of people caring for both children and elderly parents.

    Costs are forecast to grow exponentially as the nation ages and the demand for long-term support increases. Today around a fifth of the population is aged 65 or older. In 50 years, that is expected to rise to one in four of the population.

    A cap on lifetime care costs was the solution recommended by the Dilnot commission, set up under former Prime Minister David Cameron.

    Other ideas mooted in the past have include a Japan-style tax on the over-40s which would go straight towards care funding, easing the burden on the youngest taxpayers.

    Compulsory insurance for the over-55s to cover care costs in later life was another idea, favoured by the Adam Smith Institute think tank.