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Workers can expect a 1.25% increase to their National Insurance (NI) payments, in order to increase funding for social care.
Prime Minister Boris Johnson is set to announce plans to increase National Insurance, to resolve the issue of social care funding and to help the NHS cope with patient backlogs caused by the pandemic.
The Prime Minister is also set to announce tax hike on share dividends.
What does this mean for your finances?
A 1.25% increase in National Insurance will leave most workers paying more tax. This means the amount of money you take home each month will drop. Here is how it will affect different earnings levels:
- For a salary of £25,000, this would mean an additional £193 per year
- For a salary of £35,000, this would mean an additional £318 per year
- For a salary of £50,000, this would mean an additional £818 per year
Caroline Stark, a marketing executive at accountancy firm Ridgefield consulting, commented: “Raising NI is wrong and regressive, placing a grossly disproportionate burden on society’s youngest and lowest earners.
“You pay National Insurance of 12% on any earnings between £9,000 and £50,000. Above £50,000 you only pay 2%. This is simply not fair!
“They should remove the Upper Earnings Limit on NICs.”
Why is National Insurance increasing?
These plans are designed to help fund the social care system for disabled or elderly people. Care services help the vulnerable to perform daily tasks and activities with the support of social workers.
“One-in-seven people pay £100,000 or more for their social care, so in my view that nettle has to be grasped,” vaccines minister Nadhim Zahawi said in an interview with the BBC.
The tax increase could also help grow hospital capacity in England to 110% of its current level, according to the BBC.
This increase sparked a backlash from Conservatives, and other members of the public.
Andrew Sherville, retired, said: “We are being clobbered at a local level with 3% per annum (Kingston) increases in Council Tax and now additional NI.
“Fix the system and fund it accordingly. Stop pouring money into a broken system.”
Who will be most affected by this increase?
The Health and Social Care levy based on the National Insurance contributions will start from April 1, 2022. It will cover earned income and those working past state pension age.
“Today’s announcement was widely trailed and attracted criticism for placing the burden of dealing with the social care crisis on the shoulders of younger working generations,” said Helen Morrissey, senior pension and retirement analyst at Hargreaves Lansdown.
Helen Thornley, ATT technical officer from the Association of Taxation Technicians said: “It’s targeting people who are employed, and it’s targeting people who get income from dividends.
“That’s typically people who run their own company and will take their income through a dividend. But it’s not going to pick up a landlord, because national insurance doesn’t apply to rental income. And it’s not going to pick up pension income because it doesn’t apply to pensioners.”
Dana is a former reporter at Mouthy Money, having previously worked for Times Money Mentor and the BBC.