London Daily

Focus on the big picture.
Friday, May 20, 2022

Middle-income earners ‘to be hit hardest’ by national insurance rise

Middle-income earners ‘to be hit hardest’ by national insurance rise

Workers on £30,000 to £50,000 will pay higher percentage of salary than those on £100,000, figures reveal
Earners of £100,000 a year could end up paying proportionately less in national insurance than those on middle incomes if a planned increase goes through in April, it has emerged.

Figures produced by the Tax Calculator UK website show those earning £100,000 a year will pay just 7% of their overall salary in national insurance contributions (NICs) – the same proportion of their income as someone on £20,000 a year.

The prime minister and the Treasury have come under intense pressure to scrap or at least postpone the £12bn increase in NICs – introduced to cover the shortfall in social care funding – as the cost of living crisis continues to escalate.

While the Treasury has repeatedly claimed the increase is “progressive”, figures published on Friday by the online tax calculator show that workers earning between £30,000 and £50,000 will be the hardest hit by far.

It calculates that someone earning £50,000 a year will pay £5,086 a year in NICs alone after April – a £505 increase – amounting to 10% of their gross salary.

While someone earning £100,000 a year is set to pay the highest national insurance bill – £7,008 a year (an increase of £1,130), the proportion of their pre-tax income paid in NICs will be just 7%. Those on £30,000 a year will pay 9% of their gross salary in NICs.

“The increase in national insurance will have a huge effect on workers’ earnings in 2022, especially given soaring energy bills and the fact that inflation is at its highest point in 30 years,” said a spokesperson from Tax Calculator UK.

“This data gives us a compelling insight into the fact that lower and average earners will be significantly more squeezed by the NICs hike than those at the very top.

“People earning some of the highest salaries in the country are set to pay the same percentage of their salary as a person on £20,000, despite earning five times as much.”

From April, NICs are set to be charged at 13.25% on most earnings up to £50,000 but at just 3.25% on income above that threshold.

The figures will be seized upon by Labour, which has called for a fairer, more progressive way to fund social care. The shadow chancellor, Rachel Reeves, told the BBC on Friday morning that this was the “wrong tax at the wrong time” and described it as a tax on “ordinary working people and on jobs”.

The increase in NICs was announced by the chancellor, Rishi Sunak, in last autumn’s budget and will hit wage packets on 6 April, at the same time as a four-year freeze on income tax thresholds.

The combination will leave the average household £600 a year worse off in 2022-23, the equivalent of 1.4% of their disposable income, according to the Resolution Foundation thinktank.

Business groups are also furious at rising bills for employers. On Friday the Institute of Directors joined calls from other business leaders to scrap the tax rise.

A Treasury spokesperson said: “It is not true to say that high earners are least affected by the health and social care levy. Everyone with earnings above the primary threshold will pay a flat 1.25% on their income.

“Over half the revenue from the health and social care levy will come from the wealthiest 15% of the population, while over 6 million people on lower incomes will be completely exempt.”
Newsletter

Related Articles

London Daily
×