March 21, 2022

The Telegraph – Plan to soften National Insurance increase only saves £183 a year

Chancellor Rishi Sunak’s plan to dampen the National Insurance tax rise would only save middle income earners £183 a year versus current rules and still leave households hundreds of pounds worse off.

The Government is considering plans to soften the 1.25 percentage point NI increase by raising the thresholds at which people start to pay the tax. Under current plans, the trigger point will be £9,900 from April but reports have emerged over the weekend this will increase to £11,284.

This would offset the higher tax rate for lower earners, meaning no one earning below the median national wage of £27,500 a year would pay more in contributions. This would cost the Treasury about £5bn a year.

However, the burden would fall on millions of workers earning more than £27,500, who would still be forced to pay hundreds extra to the taxman from April. 

Anyone earning £50,000 a year would still be £323 out of pocket, as the Chancellor has put Britain on course for its biggest tax burden in 70 years. If the threshold remains at £9,300 the same worker would pay £506 more a year. 

Mr Sunak will deliver his Spring Statement on Wednesday, when he is expected to set out some measures to help ease the cost of living amid fears inflation could hit 10pc this year. The Chancellor is understood to have accepted that the scale of the Ukraine crisis required a fresh intervention by the Government.

Conflict in Ukraine will push inflation higher as it is likely to feed into higher energy bills and wider inflation at home, experts have warned.

An estimated £71bn could be wiped off living standards in the most dramatic drop since records began and more than half of this drop will come as a consequence of the war in Ukraine, according to a report from consultancy Centre for Economics and Business Research. This equates to a fall of £2,500 per household due to the conflict, it said. 

The Centre for Policy Studies, another think tank, has warned it would be “perverse” to continue with a 1.25 percentage point NI rise that would “make every working person in the country poorer”, given how much the outlook has changed since the increase was announced last year.

It added: “If the Treasury will not abandon the tax hike, it should at least compensate for its impact by increasing the threshold for paying employee NI. This is far from a perfect solution – businesses and high earners would still pay more, damaging growth, and separate measures would be needed to address the impact of higher energy bills on the most vulnerable.”

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