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What does a National Insurance increase mean for your finances?
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.”
Photo by Number 10 from flickr
You don’t get something for nothing in this world so inevitably if we want to improve our Social Care it has to be paid for somehow, basic economics we all know. Question is how to pay for it.
Well at the very basic level we are all human and will want equal access to the same care opportunities so is it not fair for us all to pay the same……..not for those who cannot afford it I here you say……….so what is meant by affordable.
I think this argument is equally arguable by those out of / low paid work who possibly can’t better there standard of living be it via skill or will and and those that have studied/worked hard and put effort into to achieve their higher standard of living. The former arguing they can’t pay and the latter saying its not fair they pay more because they have worked hard.
So the bottom line is someone has to pay…..the problem lies in the current system which is to tier payment from everyone at 12% and downwards to those who earn more and can pay with increased ease to the point of a cap. Surely if based on affordability /enabling everyone to afford a good basic standard of living it should be tiered in the opposite direction or better still keep it flat, i.e. 5% regardless of what your annual salary is. This means everyone pays the same based on affordability.
Unfortunately Governments don’t like to cut the hands that feed them so the rich will continue to get richer off the backs of the poor. Welcome to the modern democracy we are all persuaded to believe is the means to a free and fair society………oh how wrong we all are..