National Insurance hike: Expert discusses effect on businesses
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The National Insurance rates will increase by 1.25 percent this month but the minimum threshold will increase in line with the income tax threshold, meaning those earning less than £12,570 not having to pay either tax. However, tax partner at HURST, Adrian Young, shared exclusively with Express.co.uk that this alongside the other changes announced in the spring budget “will do little to alleviate people’s financial woes”.
At the end of March, Chancellor Rishi Sunak presented the spring statement which was hoped to contain a delayed National Insurance increase.
Instead, Mr Sunak brought forward a shift in the National Insurance threshold as well as an income tax cut due in the next few years.
It is undeniable that the chancellor has been faced with increasingly unpredictable economic volatility over recent years with Brexit, the pandemic and the impact of the Russian invasion of Ukraine.
Mr Young noted that “Mr Sunak faces many problems” which have grown into a cost of living crisis directly battering household finances.
As a result, many of the measures announced during the spring statement were intended to help Britons weather this storm.
Mr Young explained: “Unfortunately the changes will do little to alleviate people’s financial woes.
“The increase in the threshold at which people pay NICs is certainly welcome.
“However, there is a costly sting in the tail that Mr Sunak didn’t mention during the Spring Statement. From April, the new Health and Social Care Levy comes into force. This is a 1.25 percent increase in the rate of NICs for everyone who pays them.
“So the increase in the threshold is in reality just a slight softening of an overall steep rise in tax starting in April.
“Mr Sunak’s reasoning is that overall 70 percent of people paying NICs will be somewhat better off. But the reality is that anyone earning more than about £35,000 per annum will likely be worse off. There is no hiding the fact that the increase in NICs payable overall as a result of both measures is significant.”
Mr Young added a different measure announced, the five pence fuel duty reduction, was not making its way to consumers at all.
Research by AA indicated petrol prices have fallen 2.71 pence per litre and diesel an even more disappointing 1.59 pence after the measures came into force.
Mr Young continued: “Such a small decrease in duty is dwarfed by the much greater increase in the underlying costs of the fuel itself.”
He advised that drivers “shop around” for the best gas prices in order to ensure they are getting the best of a bad deal.
Mr Sunak also announced that income taxes will be reduced by one penny per pound for basic rate payers, a change which is intended for 2024, but Mr Young is doubtful.
He said: “Even this is no certainty. The Chancellor said it would be introduced before the end of 2024, but the reduction is subject to the economy meeting strict conditions between now and then.
“It is unclear how the Ukrainian crisis and inflation will impact the economy, and therefore whether the chancellor can make good on the promised reduction. Probably because of this, he didn’t actually make a firm commitment to the reduction.
“Instead I think we should see this as something Mr Sunak dearly would like to deliver. Whether or not he can actually deliver it will however depend on economic performance over the next couple of years.”
He concluded: “As a result of all these measures, Mr Sunak is in the uncomfortable position of being responsible for the largest increases in taxes in living memory. We must of course see this in the context of the pandemic and the Ukrainian crisis, but the measures the Chancellor unveiled in the Spring Statement are unlikely to do much to shake off this high tax reputation.”
A Treasury spokesperson said: “Exceptional levels of borrowing not seen since the Second World War to support jobs and livelihoods through the pandemic meant we had to make to make tough decisions to repair the public finances – as well as investing billions in tackling the NHS backlog, reforming social care, and continuing the fight against covid. It’s right that the cost should be borne by those with the broadest shoulders.
“We understand that people are struggling with the rising cost of living – we can’t shield everyone from the global challenges we face but we’re putting billions of pounds back into the pockets of hard-working families across the UK. We are taking action worth over £22billion this financial year to help people with the cost of their energy bills and to ensure people keep more of their money.”
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