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£5bn 'tax on jobs' as National Insurance pushed up
NATIONAL INSURANCE The Exchequer will claw back about £5bn a year through increasing National Insurance contributions in a move described as "an extra tax on employing people".
Both employees and employers will see National Insurance contributions rise by 0.5p in the pound from April 2011, with those earning the highest rate seeing their contribution rise by a full penny.
Only people earning less than 20,000 will be exempt from the rise as the Treasury attempts to pay for the significant levels of borrowing it has promised between now and 2015.
The Chancellor said: "I considered a number of options to raise revenue in future years. And I have chosen those which are fairest – and affect those who have done best out of the growth of the last decade.
"By 2011 we expect the economy to be recovering strongly, profits rising and incomes growing at close to four per cent, as they have over the last decade. I propose, therefore, from April 2011 to increase by half a per cent all rates of National Insurance Contributions, for both employees and employers."
He said that the increase would not fall on those with modest incomes, below 20,000, but that it was fair to increase the tax burden on the rich as those with the highest incomes have seen their earnings almost double since 1996.
But analysis showed that a teacher earning a typical 30,000 will have to pay an additional 125 a year.
Those on the left yesterday hailed the move as part of the most redistributive budget since Labour took power in 1997, while those on the right said it would unfairly penalise the country's wealth generators.
The Conservatives said that the National Insurance increase would hit most teachers, journalists, social workers, police officers, paramedics, firemen, office managers and professionals.
Lisa Harker, co-director of think tank IPPR, said: "In tax terms this was the most redistributive budget statement of the last 30 years.
"By introducing a higher rate of tax, raising national insurance contributions, rebalancing and increasing personal tax allowances and enhancing child and pensioner benefits, the tax burden will be shifted away from those who can least afford to shoulder it."
Leonie Kerswill, tax partner at PricewaterhouseCoopers, said the measures as a whole would affect those at the extremes of the pay scale.
"Those earning less than 20,000 should be winners. Those in the middle will be generally worse off because of the National Insurance changes. But a lot of the people who generate the wealth will be worse off," she said.
David Frost, director general of the British Chamber of Commerce, said: "The proposal to increase National Insurance contributions is wrong. At the very time when the economy should be coming out of the recession, businesses will face an extra tax on employing people. This is not the way to reduce unemployment."
Shadow Chancellor George Osborne said the Government was "giving 20bn in give-always and taking back 40bn in higher taxes" and that the "major rise" in National Insurance would hit middle Britain.
He claimed that anyone earning more than 20,000-a-year, the majority of earners, would be worse off by 2012/13.
Ruth Dooley, tax partner at Grant Thornton, said: "The short-term benefit this year and next year from the VAT giveaway of 12.4bn will be paid for many times over by workers from April 2011.
"The national insurance increases are likely to be a much longer-term change reaping the Treasury more than 5bn each year."
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Saturday 11 February 2012
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