National Insurance won’t rise ‘for now’ to cover NHS pay boost Kwasi Kwarteng confirms | Personal Finance | Finance
NHS workers have been offered a three percent pay rise as the Government recognised the “unique impact of the pandemic” on staff. This offer is three times what was originally proposed in March, where the Department for Health and Social Care warned a one percent rise was all that was affordable.
Mr Kwarteng continued: “That’s, again, another question that we’re debating within the Government. My understanding is that we will have a policy by the Autumn.
“For now, I don’t think we’ll put up NI.”
When pushed on how the Government will cover the costs without raising NI, Mr Kwarteng stated he didn’t know exactly how it would be done yet but the Government was working on a solution.
Ms Burley questioned whether the Conservative’s would be forced to break their manifesto pledges and Mr Kwarteng detailed the state will do what it can to avoid that.
Mr Kwarteng said: “I hope we don’t but I’m not ruling anything in or out, I never do in these interviews, I’ve just got to be very clear about the difficult choices that we have to make.
“Also, the other thing that we’ve got to remember is that we don’t know in three months time where we will be with a pandemic.
“We don’t know what the state of the finances will be, we don’t know what the state of the economy will be so it doesn’t make any sense to rule that many things in or out at this stage.”
Boris Johnson has also recently faced questions on how Covid spending would be covered, with many experts warning the Prime Minister has been dodging the question of whether taxes and NI would be raised or not.
Recently, Sarah Coles, a personal finance analyst at Hargreaves Lansdown, broke down who specifically would be hit by rising rates among UK savers: “Reports are now suggesting the manifesto promise not to increase income tax or National Insurance may not hold for the rest of the year, and that a one percent rise in National Insurance for both employees and employers is close to being agreed. This would generate an estimated £10billion, which would be used to help clear the enormous NHS backlog and fund a cap on social care.
“Choosing to raise NI over income tax has two distinct effects. It hits people on lower incomes faster, because NI kicks in at £9,568, while income tax does so at £12,570. It also only affects people between the ages of 16 and the state pension age. It means that older people could be unaffected by the change.
“The Government could decide that because older people stand to benefit from the change, they may also have to help pay for it, and it could bring in a class of contributions for older people. Alternatively, it could make the specific choice to protect this group from the impact of the change.
“If NI does rise, it makes any pension scheme operating via salary sacrifice particularly attractive. These effectively lower your salary, and you receive pension contributions instead. These contributions come out of your salary before tax or NI is paid, so neither you or your employer have to pay NI on this chunk of cash. In some cases, your employer will pay their NI savings into the scheme, which means the change will help boost your pension pot.
“The government has clamped down on a number of salary sacrifice employee benefits which previously had an NI perk. However a small number – including pensions and the bike to work scheme – remain. If the government does raise NI, it’s well worth considering whether you can make more of these schemes.
“With the Chancellor and the Prime Minister self-isolating and MPs set to pack up for the summer this week, it’s likely that we’ll have to wait for the autumn for any major announcements. At that point, we’ll be heading towards The Budget, and there’s the chance the tax floodgates will open.
“We can’t be certain what changes lie ahead, but we can be increasingly confident that life isn’t going to get any easier for taxpayers, and tax allowances are unlikely to get more generous. For savers and investors this means it’s well worth considering whether it makes sense to take advantage of current allowances while you still can.”