National Insurance warning: Britons could be hit with ‘higher prices’ after tax hike

Question Time: Panel discuss National Insurance funding

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A Bank of England survey has found this week that inflation expectations are rising as the UK economy looks to recover from the pandemic. The research found that the rate at which people, consumers, businesses and investors expect prices to rise in the future rose to 2.7 percent in August from 2.4 percent in May. Concern has been evident from the Bank of England regarding inflation, with Governor Andrew Bailey warning that inflation will provide “crucial challenges”. He said: “The recovery will be bumpy given the nature and severity of the shock”

“The challenge of avoiding a steep rise in unemployment has been replaced by that of ensuring a flow of labor into jobs. This is a crucial challenge.”

An economist at the Institute of Economic Affairs, a free-market think tank, tells that prices could also rise as a result of the recent National Insurance hike.

Julian Jessop also warned that the tax increase on employers will be passed on to employees via less jobs being available or lower wages.

He said: “It certainly adds to the downside risks, the economy is already facing a few headwinds at the moment.

“Supply problems, lingering concerns about Covid and a renewed lockdown in October.

“The idea that taxes are going up generally, but specifically taxes on employment, is another challenge the economy could do without.

“I’m still optimistic the labour market can recover strongly, there’s currently a shortage of workers so employers probably will be willing to pick up the bill for higher National Insurance contributions.

“But they will inevitably pass that bill on in one way or another. Maybe in the form of lower wages, workers might not get as much in their pay packets as they might have otherwise done. Or it could be higher prices.

“There isn’t a free lunch here. But I imagine Boris Johnson will get away with it because the labour market is currently so strong.”

Prime Minister Boris Johnson’s National Insurance hike will set the UK on track for a record level of taxes.

The policy came despite the fact that the Conservative Party pledged not to raise taxes in its 2019 manifesto.

Businesses have warned that the recovery of jobs could be impacted by the decision.

The British Chambers of Commerce (BCC) said it would “be a drag anchor on jobs growth” as firms emerge from the pandemic and furlough winds down.

Manufacturing trade group Make UK’s boss also described its introduction as “ill-timed as well as illogical”.

Lord Karan Bilimoria, president of the CBI, said: “After all that business has gone through during the pandemic and the fantastic government support that followed, now is not the time for tax increases.

“It’s time to stimulate investment and growth in the economy.”

The tax rise was brought in to initially help with the NHS backlog, but in the longer term will be used to pay for long-awaited health and social care reforms.

Mr Jessop believes that the tax rise isn’t even guaranteed to fix health and social care.

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He adds: “It’s a tax increase for a start, you have to question whether you needed to raise taxes in the first place.

“But also, the money doesn’t look like it’s going to be well spent, so it doesn’t even look like it’s going to achieve the aim of improving health and social care.

“I think it’s a missed opportunity to have a fundamental rethink about social care and tax. Instead, they have gone for a short-term fix that actually may end up fixing nothing at all.

“There’s actually not going to be money for social care for several years, initially the money is going to be used to solve the backlog in the NHS.

“In the longer run, there’s no actual guarantee that this money will go to social care because, although they say it’s going to be ring-fenced, why would you necessarily believe a Government that’s just broken so many manifesto promises in a single day.”

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