London to bear brunt of Boris Johnson’s £36bn National Insurance tax increase

·3-min read

Families in London will bear the brunt of the Government’s National Insurance tax grab, according to analysis by leading economists.

The calculations by the Institute for Fiscal Studies show households in the capital will suffer a loss of income on average twice as much as some other regions such as Yorkshire, parts of the North-East and Wales.

The wider South-East is the second hardest-hit region.

The IFS analysis shows the capital and South-East will be left with a bill of around £5 billion from some £12 billion being raised by a 1.25 percentage point rise in NI on workers below the pension age to boost the Covid-hit NHS and tackle the crisis in social care.

Tom Waters, senior research economist at the IFS, told the Standard: “Workers in London and the broader South-East, being the highest-paid regions, are the most affected by the tax rise — both in absolute terms and as a proportion of their earnings.”

Despite the increase in NI contributions pushing taxes to their “highest-ever sustained share of the economy”, MPs have been given just a day to consider the historic move before being ordered to vote on it this evening, with the threat of a reshuffle, possibly as early as tomorrow, having been dangled.

Dr Alice Lilly, senior researcher at the Institute for Government, said: “It seems clear that the Government has brought the vote forward to try to bounce MPs into accepting the policy.

“This is just the latest example of the Government’s disregard for scrutiny.”

Professor Tony Travers, of the London School of Economics, added: “It’s a very brutal choice and does not leave much scope for debate.”

The IFS calculations are “broadly illustrative” as they do not include the levy on working pensioners or on dividend incomes, and may be using slightly different population figures than the Government.

But they show the average “income loss” per household a year, which takes into account changes to universal credit linked to tax paid, in London being £659 a year from the NI change for people below pension age.

In the South-East it is £554, North-West £367, Yorkshire £315, rest of the North £310, East Midlands £349, West Midlands £387, East Anglia £430, South-West £384, Wales £297, Scotland £370, and Northern Ireland £347.

A Treasury spokesman said: “We’ve made the tough but responsible decision to raise taxes. It’s right that those with the broadest shoulders bear the biggest burden.”

The Resolution Foundation said a £86,000 cap on care costs will be of most benefit to those in the more affluent South, partly because they will see a greater share of their assets protected.

The tax grab will actually raise £14 billion, with some £2 billion being paid back to public sector employers.

An age breakdown of the impact of the tax reform show families in London where the oldest person is below 30 will be landed with 14 per cent of the NI bill, 58 per cent for those where the oldest person is 30 to 49, 28 per cent for those where the oldest person is aged 50 or over. However, many younger people with little disposable income will particularly feel the impact of the tax rises.

Defending the landmark tax reform, Health Secretary Sajid Javid insisted it was a “very Conservative thing to do” and was showing “fiscal responsibility”.

Asked today whether there would need to be more tax rises to fund the health service, he told Sky News: “I think this is enough money.”

He stressed that even after the rise in NI and dividend tax is taken into account, the UK’s overall tax rate would be 35.5 per cent of GDP, lower than Germany, France and Italy.

He also emphasised that the new levy was a progressive way of taxing people, as the highest 14 per cent of earners would pay 50 per cent of it.

However, Torsten Bell, chief executive of the Resolution Foundation, said the tax package signals that “low tax Conservatism is dead”.

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