What's the buzz around National Insurance in the UK?

Summary 

  • The UK government may hike the national insurance contribution in order to tackle a shortfall in social care funding.
  • The UK government is planning to increase the national insurance contribution by 1%.
  • The hike in National insurance would affect the take home pay of workers.

The UK government may soon plan to increase the National Insurance contributions by 1% in order to make an effort to fund a shortfall of £7 billion (US $9.5 billion) in social care funding. According to the media reports, PM Boris Johnson and Chancellor of Exchequer Rishi Sunak are close to finalising the plan. According to the estimates, the UK government can raise something between £10 billion to £12bn annually from the hike in national insurance payments. The hike in the National insurance would immensely affect the take-home pay of workers or employees.

What is National Insurance?

National Insurance is one of the fundamental elements of the welfare state in the UK, which is a kind of social security tax. The National Insurance Act was introduced in 1911 in order to help fund the welfare state. The social security tax under national insurance is levied on workers or employees salary directly and snag out from workers and employees pay packets by their employers even before going in the pockets of the workers or employees.

An individual who pays the national insurance contribution qualifies for specific benefits and the state pension. National insurance contribution is one of the major sources for the Treasury’s revenue and is expected to raise more than £150 billion in the year 2021-22. Usually, national insurance contribution rates range between 5.88% to 9.7% depending on the level income of the workers or employees. The UK government is planning to increase it from 6.78% to 10.51%.

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Who all will contribute to the National Insurance

The National insurance payment is mandatory for every person who works in the UK.

  • Employees between the age of 16 and 67 are liable to contribute to the national insurance.
  • An employee or worker who earns above £184 a week is liable to pay national insurance.
  • A person who is self-employed and generates a profit of £6,515 or above in a year is liable to pay the national insurance.

How will the hike affect workers  

A hike in national insurance contributions will have a direct impact on the salary of a majority of employees. Though the hike in national insurance contribution won't hit everyone equally. The National Insurance is considered as a tougher tax in the comparison to the income tax as national insurance begins in at £9,568 whereas income tax only starts for the earnings more £12,570. The plan affects the younger workers and employees than the older ones.

With the proposed hike, a person who earns £30,000 a year would have to pay £200 or more annually, according to experts.  

As per other estimates by the experts, a person earning £20,000 a year would pay £2 per week or pay £17 per week for a person who earns £100,000 a year.

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