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Financial pressures on many UK households and businesses have intensified today as National Insurance rates are raised to raise funds for the NHS and social services.
Despite the cost of living crisis, the government continued with its 1.25 percentage point hike in National Insurance, announced last September.
The move means millions of workers will start paying higher national insurance contributions from today, the start of the new fiscal year.
Companies will also see their contributions increase, at a time when they are already juggling rising costs. Dividend income tax rates also increase by 1.25 percentage points.
Business groups, unions and some Tory MPs had all pushed the government to delay the increase, given the financial pressures on workers and businesses.
The Health and Social Care Levy is set to raise around £12billion a year, to tackle the backlog of NHS cases due to the pandemic, and also reform routine services.
Today’s changes mean those earning over £9,880 will now be liable for 13.25% NI contributions, up from 12% previously. Income over £50,270 will be charged at a rate of 3.25%, down from 2% previously.
But from July National Insurance will only start being charged on earnings over £12,570, because Chancellor Rishi Sunak announced a £3,000 increase in the NI threshold in the statement last spring. This will take around two million workers out of direct tax in total (if they earn less than £12,570 a year).
According to Resolution Foundationanyone earning less than £32,000 a year will be better off under the combination of these two policies from July.
But other changes come into effect for the new tax year, including a freeze on income tax thresholds. This will cause more people to pay taxes, or more taxes, if their salary increases over the next few years.
This will make it harder for households to manage rising costs, such as the spike in energy bills last week.
Prime Minister Boris Johnson defended National Insurance increases, saying the health service needs more resources:
We need to be there for our NHS in the same way it is there for us. Covid has led to the longest waiting lists we’ve ever seen, so we’ll be providing millions more tests, checks and operations as part of the biggest catch-up program in NHS history.
We know it won’t be a quick fix and we know we can’t fix waiting lists without fixing social care. Our reforms will end once and for all the cruel lottery of spiraling and unpredictable care costs and bring the NHS and social care closer together. The tax is the necessary, fair and responsible next step, providing our health and care system with the long-term funding it needs as we recover from the pandemic.
The government says the levy means:
- From today the Health and Social Care Levy will start raising billions to tackle Covid backlogs and reform routine services
- £39billion over the next three years will put health and care services on a sustainable footing
- Levy will deliver the biggest catch-up program in NHS history and end spiraling social care costs
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