National Insurance rise: What is the new rate and how will it affect me?

·4-min read
National Insurance contributions will increase from April
National Insurance contributions will increase from April

National insurance (NI) is set to rise for workers in April as families face a cost of living crisis.

The prime minister is understood to be under pressure from his cabinet to delay the tax increase at a time when households are experiencing spiraling energy and food bills and council tax rises.

But on Monday Boris Johnson suggested that he will stick with the proposal to help fund the NHS.

When asked by journalists whether the rise would go ahead in the face of cost of living pressures, Mr Johnson said: “The NHS has done an amazing job but it has been under terrible strain.

“Listen to what I’m saying: We’ve got to put that money in. We’ve got to make that investment in our NHS.

“What I’m telling people is, if you want to fund our fantastic NHS, we have to pay for it - and this Government is determined to do so.”

Here’s how the tax rise will impact workers...

How much is tax increasing and who pays it?

Currently employees pay 12 per cent NI on earnings between £9,568 and £50,268. From April 6 this will increase by 1.25 per cent.

All working adults will pay the levy. It means an employee on a £20,000 a year will pay around an extra £130 a year in tax.

The levy will cost someone on a £30,000 salary about £255 more per year more

Someone on £40,000 will see their National Insurance contributions go up by around £380 a year - to £4,032.

A worker on £50,000 will shell out an extra £505 a year - up to almost £5,360 in tax.

Workers earning less than £9,880 a year will not have to pay the new levy.

Anything earned above £50,268 currently attracts a rate of just 2 per cent. From April this will increase to 3.5 per cent.

What is it paying for?

The £12 billion tax grab was originally intended to help fund health and social care.

But this year the money will go toward clearing the post-pandemic NHS backlog.

In April 2023, NI will return to its current rate, and the extra tax will be collected, and listed on payslips, as a new Health and Social Care tax.

Individuals above State Pension age will not be affected by the temporary increase in the 2022 to 2023 financial year, but will be liable to pay the levy from April next year.

Why is tax rising?

The care system is under pressure because of an ageing population and the pandemic. It has been hit by staff shortages and falling government spending in the sector.

This has put pressure on the NHS because elderly patients cannot be discharged from hospital if they do not have anywhere suitable to go, such as a care home place or a home nursing package.

Currently to get free social care paid for by your local council in England you must have a very high level of need and also savings and assets worth less than £23,250.

The amount you pay reduces until you have less than £14,250 in savings and assets, at which point the council pays for your care if you qualify.

Why has the NI hike been criticised?

Raising NI has a higher impact on lower-paid workers. Concerns have been raised that the new rate will have more of an affect on younger employees and women, who tend to earn less than men and are more likely to work part time.

While workers pay will pay 13.5 per cent in NI on earnings between £9,564 and £50,268, anything earned above this amount will attract a much lower rate.

This means if your income rises above £50,000, you contribution becomes a smaller and smaller proportion of your wage packet. The same rate will also apply to the Health and Social Care Levy.

It also comes as households are facing a cost of living crisis. Inflation jumped again in December to its highest rate for 30 years. Prices were rising at 5.4 per cent, up from 5.1 per cent in November. Inflation was at 0.6 per cent just two years ago.

And energy bills could increase by 50 per cent jump in April when the price cap is reviewed.

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