Boris Johnson announces 1.25% national insurance increase
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The new 1.25 percent health and social care levy on earned income will raise over 36 million pounds over the next three years with this money going straight to the reforms. The increase of National Insurance aims to share the cost between individuals and business, meaning everyone will have to contribute according to their means, including those above state pension age.
Those earning more will as a result be paying more.
The Prime Minister explained why he will not be increasing Income Tax or Capital Gains Tax.
He said: “Income tax is not paid by businesses so the whole burden would be fall on individuals roughly doubling the amount a taxpayer would have to pay.
“The total revenue from Capital Gains Tax amounts to less than nine billion pounds this year, instead our new levy will share the costs.”
The Prime Minister has announced that there will be a National Insurance Hike (Image: SKY NEWS)
Commenting on today’s announcement Steven Cameron, Pensions Director at Aegon said: “After the devastating health impacts of the pandemic, it’s only right that Manifesto Commitments aside, the Government is raising taxes to improving shorter term funding for the NHS and providing long overdue extra funding for social care.
“The health effects of the pandemic have been particularly cruel to our most elderly which has shown just how important it is to have a high quality, properly funded care system.
“As we on average live longer, more of us can expect to need some form of social care in later life and the costs of providing quality care and dignity need shared fairly between the state and those needing care, based on individual wealth.
“Research carried out by Aegon shows strong support for the costs being shared between individuals and the Government, with a cap on overall personal contributions.”
For the first time, more than 1.2 million working pensioners who don’t pay National Insurance will be expected to pay this new levy and controversially it will affect the younger generation on low incomes as they will be taxed more.
Mr Cameron continued: “The Government’s plans to increase employer and employee NI by 1.25 percent to pay for the state’s share will no doubt continue to prove controversial, with accusations of younger often lower paid workers paying a disproportionate share of the costs of care for today’s elderly, many of whom seem comparatively wealthy.
“Choosing to collect the extra funding through NI rather than income tax may make sense for the NHS boost but for social care looks more like spin. But using NI as the collection mechanism ensures businesses also contribute.
“Extending the additional care premium to those with earnings above state pension age removes what would otherwise have been a glaring generational inequity.”
National Insurance increase explained (Image: EXPRESS)
The Prime Minister accepted that he had broken the Tory manifesto pledge not to hike national insurance, but that it was a necessary move due to the financial impacts of COVID-19.
He said: “No Conservative government wants to raise taxes; I will be honest I accept this breaks a manifesto commitment. It is not something I do lightly, but a global pandemic wasn’t in anyone’s manifesto.”
“This is the right the reasonable and the fair approach.
“I think the people of this country understand that in their bones and they can see the enormous steps that this government and the Treasury have taken.”
Furthermore, from October 2023, it was announced that anyone with assets under £20,000, will have their care costs fully covered by the state.
Whereas those with between £20,000 and £100,000 will be expected to contribute to their costs but will also receive state support.
Tom Selby, head of Retirement Policy at AJ Bell, believes Mr Johnson should prepare for a public backlash outside the Westminster and private sector bubbles.
“This is likely to prove unpopular with voters, with less than one in six (15 percent) of people questioned yesterday saying they’d support an increase in National Insurance to fund social care reform,” he explained.