Boris Johnson admitted families face ‘tough times’ today as he defended hiking national insurance for millions of Britons.
Almost all workers will see the government take more off their pay packets this month after NICs rates were raised by 1.25 percentage points – breaking a Tory manifesto vow.
The PM tried to quell fury at the move amid a wider cost-of-living crisis by insisting it is ‘necessary’ to take ‘big decisions’ to bail out the NHS and social care after the pandemic.
On a visit to a hospital in Welwyn Garden City today, Mr Johnson said: ‘What we are doing today is unquestionably the right thing for our country, it’s the right thing for the NHS.
‘Because we’ve got, here in the UK, we’ve now got backlogs, waiting lists of six million people.
‘Everybody across the country knows somebody who is waiting for cancer treatment or some sort of procedure that’s crucial for their health.
‘We’ve got to give our doctors and our nurses the wherewithal, the funding, to deal with that.’
Mr Johnson said the Government would help families ‘in any way that we can’, including the £22billion package of measures announced to support households ‘through what are unquestionably tough times caused by the end of the pandemic, the global inflation problem, the energy price spike’.
Chancellor Rishi Sunak has pledged to ease the impact by lifting the threshold at which people start paying NICs contributions by £3,000 – but that will not take effect until July.
Overall the tax burden is set to reach the highest in 70 years, while living standards are predicted to see the biggest fall this year since records began in the 1950s due to more tax, soaring inflation and energy costs.
Boris Johnson and Rishi Sunak have tried to quell anger about the move amid a wider cost-of-living crisis by insisting that hikes are ‘necessary’ to bail out the NHS and social care
Ministers insist the tax rise, tagged the Health and Social Care Levy, is needed to help tackle Covid backlogs and reform the adult social care system – raising £39billion over the next three years.
In a round of interviews this morning, Sajid Javid argued it is ‘right that we pay for what we are going to use as a country’.
The Health Secretary told Sky News: ‘It kicks in today, the new health and social care levy. All of the funding raised from it is going to go towards the extra £39 billion we are going to put in over the next three years to health and social care.
‘It’s going to pay in the NHS for activity levels that are some 130 per cent of pre-pandemic, it’s going to be nine million more scans, tests and procedures, meaning people will get seen a lot earlier.
‘Why is any of this necessary, whether it is for health or social care? It’s because of the impact of the pandemic. We know it is unprecedented. It has been the biggest challenge in our lifetime. The impact of that is going to continue for many years.’
He added: ‘You asked me about the fairness of it. When we spend money on public services, whether it’s NHS or anything else, for that matter, the money can only come from two sources. You raise it directly for people today, that’s through taxes, or you borrow it, which essentially you are asking the next generation to pay for it.
‘I think it is right that we pay for what we are going to use as a country but we do it in a fair way. This levy, the way it is being raised is the top 15 per cent of earners will pay almost 50 per cent. I think that is the right way to do this.’
In a statement today, Mr Johnson said: ‘We must be there for our NHS in the same way that it is there for us.
‘Covid led to the longest waiting lists we’ve ever seen, so we will deliver millions more scans, checks and operations in the biggest catch-up programme in the NHS’ history.
‘We know this won’t be a quick fix, and we know that we can’t fix waiting lists without fixing social care.
‘Our reforms will end the cruel lottery of spiralling and unpredictable care costs once and for all and bring the NHS and social care closer together.
‘The levy is the necessary, fair and responsible next step, providing our health and care system with the long term funding it needs as we recover from the pandemic.’
The Conservative Party 2019 election manifesto, which helped Mr Johnson deliver a landslide majority, pledged ‘not to raise the rates of income tax, national insurance or VAT’.
But senior ministers have argued that the impact of the coronavirus crisis meant that tax promise to the electorate could no longer be kept.
Mr Sunak confirmed he was pushing ahead with the tax rise in last month’s Spring Statement.
The Treasury said raising the threshold to £12,570 from July will give 30million workers a tax cut, which one source said meant ‘we have spiked the hike for most people’.
Yet the Government is facing fresh pressure to scrap the hike as new figures suggest the Chancellor will rake in an extra £38.6billion in VAT over the next four years.
Families will pay an estimated £430 more in VAT next year compared to last as skyrocketing inflation pushes up prices in shops, according to analysis by the Liberal Democrats.
The OBR predicts that living standards will see the biggest fall this year since records began in the 1950s due to more tax, soaring inflation and energy costs
The headline CPI rate has been soaring in recent months and is expected to go even higher
The party is urging Mr Sunak to slash the top rate of VAT from 20 per cent to 17.5 per cent for one year.
Lib Dem leader Sir Ed Davey said: ‘Families are facing soaring energy bills and desperately need a tax cut to help them make ends meet. But instead of helping, the Conservatives are breaking their promises by raising taxes again and again.’
Separate analysis by the party, shared with the Mail, shows the hospitality sector is facing a £360million tax bombshell as a result of the NI hike.
Pub, restaurant and hotel owners are set to pay more than £215million this year to due to the hike, while hospitality workers will face an extra tax bill of nearly £145million.
Sir Ed warned: ‘This unfair tax hike could sound the death knell for our treasured pubs and restaurants.’
The British Chambers of Commerce (BCC), which represents businesses across the country, is also urging Mr Sunak to scrap the NI hike as soon as possible.
The organisation’s director general, Shevaun Haviland, said she was ‘disappointed’ that the Chancellor had chosen to ignore bosses’ objections to the tax grab.
She said: ‘Last summer businesses were already saying there was an increase in raw materials prices and shipping costs, and recruitment was very hard. Into December, energy prices started to tick up – and that was before the war in Ukraine pushed them off the scale.
‘And now they’ve got the NI hike. This is not business as usual – it’s very serious. We just wanted the hike to be delayed for a year until businesses could get back on their feet.’
How will the national insurance hike affect you?
The pain of the rise in national insurance will be felt by people on their next payday, as they try to juggle surging living costs on a shrunken wage packet, experts have warned.
Here is a look at why the increase is happening and why ‘awful April’ is seen as just the start of a string of tough months ahead:
Why has the increase been introduced?
The Government says the 1.25 percentage point rise in national insurance (NI) will be spent on the NHS, health and social care in the UK.
From April 2023, the NI rate will return to the 2021-22 level, as a new health and social care levy introduced.
The tax rise could raise £39 billion over the next three years, helping to reduce NHS backlogs which have been exacerbated by the coronavirus crisis.
The extra cash raised could reduce waiting times and deliver millions more scans, tests and operations.
– Who does it apply to and how will the increase be taken?
If you are employed, this will come out of your wages before you are paid and the contributions will show in your payslip. Self-employed people pay national insurance depending on their profits and employers also pay NI contributions.
How else are households being squeezed?
This month has been dubbed ‘awful April’ by some, as households are dealing with multiple pressures from soaring living costs.
The NI rise comes on top of a 54% increase to Ofgem’s price cap and increases to council tax and water bills, mortgages, rents, food and transport costs.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: ‘Awful April is just the beginning of an incredibly tough few months…
‘The real pain of the national insurance hike will be felt on payday, at the end of the month.
‘At that point, we’ll be reeling from the impact of higher energy bills, council tax, water bills, fuel costs – and we’ll have to manage it all on a smaller pay packet. It’s a terrible time to hike taxes.’
Why will people particularly feel the pinch from the NI change in the next few months?
Employees currently pay national insurance on annual earnings above £9,880, but from July the threshold will increase to £12,570.
Ms Coles said the rise in the NI threshold will help combat the cost of the increase for lower and average earners.
But she said: ‘It doesn’t actually affect pay packets until the end of July.’
She continued: ‘In the intervening months, the threshold will be just £9,880, and the 1.25 percentage point rise will leave someone earning £20,000 paying £130 more a year, someone on £30,000 will pay £255 more, and someone earning £50,000 will pay £505 more a year.
‘And while 1.25 percentage points doesn’t sound like much of an uplift, in reality it will mean someone on an average wage will pay 10% more.’
Is there anything people can do to combat the impacts of the NI hike?
Salary sacrifice schemes allow employers to reduce an employee’s salary and pay the equivalent amount into a non-cash benefit, such as pension contributions or a cycle-to-work scheme.
Adrian Lowery, personal finance expert at investing platform Bestinvest, said: ‘An employer could agree to contribute a greater proportion of your salary into your workplace pension, in lieu of pay.
‘While pension contributions always benefit from income tax relief, if this system is used then national insurance relief is also obtained.’
He said there are downsides, however, to reducing your salary, such as decreased mortgage affordability.
Myron Jobson, senior personal finance analyst at interactive investor, warned: ‘A lower salary can affect entitlements such as maternity/paternity pay, mortgage applications based on one’s income, and some state allowances.
‘As such, people should always consider how such benefits could impact their finances more broadly.’