London Daily

Focus on the big picture.
Friday, Oct 30, 2026

Cost of living: National Insurance rise starts to hit pay packets

Cost of living: National Insurance rise starts to hit pay packets

The burden of tax falling on workers and employers has increased as a hotly-debated rise in National Insurance payments takes effect.

Employees, businesses and the self-employed will pay an extra 1.25p in the pound. The extra tax is earmarked for government spending on social care.

Some MPs opposed the move amid cost of living pressures, but mitigation will instead be introduced in July.

Experts are urging people to check their status as a new tax year starts.

Earnings levels at which people start to pay income tax have been frozen, increasing the chances of employees being dragged into a new band - with a higher rate of tax - if they receive a pay rise.

How National Insurance will change


Employees pay National Insurance on their wages, employers pay extra contributions for staff, and the self-employed pay it on their profits.

In September, the government announced the rise in contributions from 6 April, in part to help ease the burden on the NHS.

It means that, instead of paying National Insurance contributions of 12% on earnings up to £50,270 and 2% on anything above that, employees will now pay 13.25% and 3.25% respectively. The self-employed will see equivalent rates go up from 9% and 2% to 10.25% and 3.25%.

Those of state pension age do not pay the tax at present, and nor do those on very low incomes.

After the announcement last year, the plans were met with disapproval from opposition parties and some backbench Conservative MPs who criticised the timing, as many people face sharp rises in energy bills and prices in general.

Chancellor Rishi Sunak responded in his Spring Statement with plans to allow workers and the self-employed to earn more before they start making National Insurance payments. This will take effect in July.


Taken together, the measures mean that, over the next 12 months, anyone earning less than about £34,000 a year will pay less in National Insurance than they did the previous year, while those earning more will see their payments rise.

Had the chancellor stuck with his original plan, then all but the very lowest income workers would have paid more in National Insurance.

Many employers will still pay more, and business groups have warned that this may be passed on in higher prices. They also said it would add to the pressures already faced by firms following the withdrawal of Covid support measures.

Among those concerned about the bill is Hanna Gentry, an assistant general manager at George's Bistro in Cleckheaton.

Hanna Gentry says the bar will need to bring in more business


"Personally for me if I look at my wage I think it's not too much, but as a business when you have to pay that on everybody's wages, it adds up really really quickly," she said.

"We are going to try and bring in more custom, that's the only way we can do it - in terms of events, new menus, to try and draw customers in."

Meanwhile James Hipkins, managing director of Emery's Timber and Builders Merchants in Stoke and Telford, told the BBC's Today programme the rise was "another little extra bit" to add to the rising cost of materials, fuel and energy.

"My greater concern is, is it the beginning of a perfect storm? By that I just mean all the little snips going up, is it going to start to stifle industry?"

However, Mr Hipkins said society had a "moral obligation and responsibility to this" to fund social care services, which he added have been "overlooked" for too long.

"We all know it needs sorting out, we all know it needs to be paid for but none of us are particularly keen on paying for it," he added.

"At this stage is it seems a bit wishy washy and woolly as it's coming in. I would feel a lot more confident and a lot more happy when I see it as an actual separate levy and it can be identified for where it's supposed to be going."

The government said it had raised Employment Allowance from £4,000 to £5,000, so smaller firms could claim up to £5,000 off their National Insurance bills. Ministers said it meant 670,000 firms would not pay the tax at all.

Overall, the increases in National Insurance for employers and higher-income workers will raise an extra £10.9bn in a year for the government, according to the Institute for Fiscal Studies.

Prime Minister Boris Johnson described it as "necessary, fair and responsible", adding that it would "provide the health and care system with the long term funding it needs as we recover from the pandemic".

Next year, the extra tax will be rebranded as the Health and Social Care Levy.

Other tax changes


An increase in the tax on dividends is also coming into effect, to add to the funds channelled by the government into the NHS and social care.

It has also gone up by 1.25p in the pound. Many private investors hold shares in an Individual Savings Account (Isa) which protects them from tax. However, some business owners pay themselves in dividends and so will face a tax rise.

Early last year Mr Sunak said the thresholds at which income tax is paid would be frozen at April 2021 levels for five years (although Scotland has different levels). That means pay rises will push more people into higher tax bands.

If a pay rise takes somebody from below £12,570 a year to above, then they will start paying income tax at 20% on the amount above £12,570. A shift in salary from below £50,270 to above means paying the higher rate of 40% on the amount above £50,270. The next threshold is at £150,000, when the additional tax rate of 45% kicks in.

Adrian Lowery, personal finance spokesman at investing platform Bestinvest, urged people to check their tax code, which is issued by HM Revenue and Customs and can be found on a pay slip.

"A tax code of 1257L is currently used for most people who have one job or pension. If yours is different, make sure you understand why, so you're not paying too much tax," he said.

At last month's Spring Statement, Mr Sunak pledged to reduce the basic rate of income tax by 1p in the pound before the end of the Parliament in 2024.

For this new tax year, the personal allowance of capital gains tax has also been frozen at £12,300, so this much profit can be realised from assets in a year before tax is paid.

The threshold for inheritance tax - a levy on estates when somebody dies - has also been frozen again at £325,000, as it has since 2009.

Newsletter

Related Articles

0:00
0:00
Close
Water pollution remains high despite £5bn investment
Regional Economic Divergence and Industrial Transformation
Technological Sovereignty and Regulatory Scrutiny
Fiscal Consolidation and Public Service Pressures
Automotive Industry Leadership Warns of Imminent Supply Chain Disruptions Following Recent European Trade Negotiations
High Court Delivers Landmark Ruling Affirming Strict Legal Protections for Corporate Data Privacy Against State Surveillance
Welsh First Minister Eluned Morgan Secures Additional Funding for Regional Transport Infrastructure and Rail Modernization
Scottish First Minister John Swinney Announces Major Green Energy Infrastructure Investment Package for Aberdeen
Department for Work and Pensions Proposes Sweeping Welfare Reforms to Incentivize Long-Term Unemployed Back into Work
Competition and Markets Authority Launches Formal Investigation into Artificial Intelligence Partnerships Involving Major Tech Giants
United Kingdom Foreign Secretary David Lammy Concludes High-Level Strategic Talks in Washington on Middle East Security
National Health Service England Unveils Emergency Winter Resilience Plan to Combat Projected Surge in Emergency Admissions
Bank of England Governor Andrew Bailey Signals Cautious Approach to Interest Rate Cuts Amid Persistent Inflation
British Chancellor Rachel Reeves Finalizes Corporate Tax Overhaul Ahead of Autumn Budget to Fund Public Services
Automotive Manufacturers Urge Government Action as High Energy Costs and Global Supply Chain Disruptions Threaten Production
Metropolitan Police Issue Formal Apology Following Inadvertent Release of Confidential Information During High-Profile Investigation
Scottish Finance Secretary Shona Robison Unveils Devolved Budget Highlighting Housing and Public Service Adjustments
Energy Regulator Office of Gas and Electricity Markets Prepares to Remove Household Gas Standing Charges Following Treasury Mandate
Treasury Confirms Reversal of Planned Cash Individual Savings Account Allowance Reduction Protecting Twenty Thousand Pound Limit
Office for Budget Responsibility Revisions Predict Moderate United Kingdom Economic Growth with Elevated Inflation Pressures
Chancellor John Healey Delivers First Autumn Budget in Parliament Highlighting Temporary Bank Surcharge and Cost-of-Living Support
Met Office Issues Extended Forecast Highlighting Stable High Pressure Weather Patterns Across the United Kingdom
Scottish Finance Secretary Shona Robison Outlines Changes to Tax Thresholds and Residential Property Levies in Edinburgh
Financial Markets and Government Bond Yields Remain Stable Following Muted Reaction to Autumn Budget Measures
Defence Committee Chair Tan Dhesi Criticizes Budget for Delaying Critical Defence Spending Decisions to Next Year
International Monetary Fund Forecasts United Kingdom Economic Growth at One Point Three Percent for Year
Office for Budget Responsibility Assesses Fiscal Headroom Reduced to Fifteen Billion Pounds Following Global Energy Shocks
Chancellor John Healey Delivers First Autumn Budget Introducing Household Energy Support and Bank Tax Hikes
Aberdeen City Council Co-Leader Faces Binding Vote Challenge as Local Councillors Launch High Court Legal Battle
Housebuilding Across Scotland Falls to Eleven-Year Low Despite Government Declarations of a Housing Emergency
Former Prime Minister Gordon Brown Organizes National Innovation Summit in Manchester to Boost Regional Competitiveness
UK Government Faces Mounting Criticism Over Lack of Environmental Consultation During Artificial Intelligence Datacentre Expansion Talks
Greggs Announces Closure of Four Major Manufacturing Facilities Across Britain Resulting in Seven Hundred Forty Job Losses
British Retail Consortium Warns That Cumulative Employment and Regulatory Costs Threaten High Street Price Stability
Lloyds Banking Group Chief Executive Charlie Nunn Warns That Increased Bank Taxes Could Deter Long-Term Economic Investment
Ipsos Polling Reveals Seven in Ten Britons Expect Personal Tax Increases Amid Deep Public Economic Pessimism
Chancellor John Healey Delivers First Autumn Budget in Parliament Amid Tight Fiscal Constraints and Slower Growth Forecasts
United Kingdom Finance Monthly Review Highlights Rising Long-Term Borrowing Costs and Persistent Energy Price Pressures Across British Markets
Royal Marines Pioneer Rapid Autonomous Drone Operations During Major High North Exercise Involving NATO Allies
House of Commons Justice Committee Urges Chancellor to Align Prison and Courts Reform Ambitions With Concrete Budgetary Resources
Government Investigates Rapid Artificial Intelligence Datacentre Expansion Strategy Following Scrutiny Over Power Grid Demands and Planning Backlogs
His Majesty's Inspectorate of Constabulary Warns Third-Party Supplier Breaches Threaten United Kingdom Police and Fire Service Data
Number of British Businesses in Financial Distress Reaches Highest Level in Two Decades Ahead of Fiscal Announcement
Chancellor John Healey Prepares Autumn Budget Amid Intense Market Scrutiny Over Fiscal Headroom and Spending Pressures
Education or Indoctrination? The Growing Debate Over Religious Participation in British Schools
Germany's Vanishing Shopfronts: The Silent Collapse of the Businesses That Built Its Cities
Northern Ireland Executive Reaches Agreement on Public Transport Modernization and Cross-Border Rail Infrastructure Funding
Department for Energy Security and Net Zero Approves New North Sea Carbon Capture and Storage Industrial Clusters
Office for National Statistics Reports Stabilization in Private Rental Growth Across Major English and Welsh Regional Cities
United Kingdom Automotive Manufacturing Output Rises Moderately as Electric Vehicle Assembly Lines Expand in the Midlands
×