The government’s planned national insurance rise has sparked fury among critics who say young people in poorly-paid jobs will bear the brunt of the increase, at a time when in-work poverty is at a record high.
Boris Johnson said the rise, set to take effect next April if MPs vote it through, would help the NHS recover after the pandemic and go towards social care reforms.
But it will mean young people already struggling to make ends meet will have even more money taken out of their pay packets, experts say, while wealthy pensioners will pay nothing.
People across the political spectrum are in agreement that the NHS and social care need more funding, but many say this isn’t the way to do it. These are some of the concerns shared by critics of the prime minister’s plan.
Some landlords won’t pay anything but their tenants will
Home ownership among working-age adults has collapsed in recent years as wages and welfare payments failed to keep up with soaring property prices and spiralling rent.
People in their mid-30s to mid-40s are three times more likely to rent than 20 years ago, according to the Office for National Statistics.
But when national insurance rises by 1.25 percentage points, the cost will fall on renters already struggling to save for house deposits and won’t be passed on to landlords who don’t have jobs.
“Boris Johnson’s tax rise means a landlord who owns more and rents out dozens of properties won’t pay a penny more, but the tenants working in full-time jobs will,” Labour leader Keir Starmer tweeted.
“They are hitting young and low-paid workers while leaving the wealthy untouched. 11 years of Tory unfairness continues.”
Graduates face huge payments as soon as they leave university
People completing their degree and entering the jobs market already face an increase in outgoings between council tax and student loan repayments, at the same time as their maintenance payments end.
The national insurance rise will add to the amount they are taxed, meaning graduates who are employed on an average salary will pay a marginal tax rate of between 40 and 50 per cent, including student loan repayments and before extra charges such as council tax.
UK jobs already don’t pay enough to cover living costs
Workers pay national insurance if they earn more than £184 per week, before tax or pension deductions.
It means even people who earn too little to pay income tax are required to make national insurance contributions. Anyone earning £9,500 per year will pay national insurance whereas only those paid above £12,570 per year will pay income tax.
One in six families with two working adults – or 17.4 per cent – were living below the breadline.
Soaring housing costs, low-paying jobs, patchy benefits payments and expensive childcare were all making it difficult for working families to afford essentials, researchers said.
George Dibb, head of IPPR’s Centre for Economic Justice, said the hike was better than doing nothing, but thinks there are better ways to fund the NHS.
He said: “Even with the levy extended to working pensioners and dividend income, older working people will be paying far less in contributions and many of those relying on income from wealth will be paying nothing additional on that income at all.
“For a fair general taxation system that funds excellent public services, we need to rebalance our tax system so that it no longer favours wealthy asset owners. That means changes including taxing income from wealth the same as income from work, and introducing a proportional property tax.”
The government is already cutting incomes of the UK’s poorest families
Despite the national insurance rise, ministers have refused to scrap plans to cut £1,040 per year from the incomes of people on universal credit.
The government increased the benefit by £20 per week at the start of the pandemic to support people through the crisis.
But now – despite millions still feeling the financial shock of the pandemic – the increase will be reversed on October 6 after ministers ignored calls from campaigners, opposition MPs and backbenchers to make the rise permanent.
It means around two million families set to lose out on income will still be required to start making higher national insurance payments in April.
“This extra cost adds insult to injury for these families,” said Peter Matejic, deputy director of evidence and impact at the Joseph Rowntree Foundation.
“If it presses ahead, this government will be responsible for the single biggest overnight cut to social security ever.”
“With inflation rising, the cost of living going up and an energy price rise coming in October, many struggling families are wondering how on earth they will be expected to make ends meet from next month.
“The Chancellor is in denial if he seriously believes this cut will not impose unnecessary hardship on millions of families, the majority of whom are in low-paid work.”