The Government’s plan to increase National Insurance Contributions (NIC) to fund social care and the NHS backlog will hit low and middle earners the hardest, say leading tax and advisory firm Blick Rothenberg.
Robert Pullen, a partner at the firm, said: ‘Increasing NIC rates by 1% will cost £2 per week for someone earning £20,000 per year, or £17 per week for someone earning £100,000 per year. This is not insignificant and will make a real dent in average family incomes.’
‘Middle earners with a salary of £50,000 will continue to pay the highest effective NIC rate at 9.7% (10.51% under the proposal) compared to only 5.88% (or 6.78% under the proposal) for someone earning £100,000. The change would add an effective 0.52% tax to someone earning £20,000 per year, and 0.9% to someone earning £100,000 per year, due to the way the allowances work.’
He added: ‘Both employed and self-employed individuals will be hit by the same amount, with self-employed individuals continuing to benefit from overall lower NIC rates unless that is also changed. No doubt the government will try to ‘sell’ the idea of what could be seen as an age war by arguing that the additional NIC cost, for someone working from age 20 to 67 and earning £20,000 per year increasing by 3% annually, is £16,500 as a result of the increase, but this will save them thousands of pounds in care costs later in life.’
‘Increasing NIC in this way will add around £6bn to tax receipts per year from employees and self-employed individuals, which broadly doubles to £12.5bn if employers are also asked to pay an additional 1% NIC, as seems likely.’