Personal Finance

Rishi Sunak shares the 'big difference' between a National Insurance and Income Tax hike


Earlier this year, the Government announced that National Insurance payments for workers and employers would be temporarily increased by 1.25 percent, prior to a new 1.25 percent Health and Social Care levy being introduced. The move has been met with criticism due to it being considered as being a tax on working-age people at a time when living costs are rising. Mr Sunak defended the move to hike National Insurance rather than Income Tax today, during an interview on The Andrew Marr Show.

On the possibility of raising Income Tax instead of National Insurance the Chancellor said: “Believe me, I wish I didn’t have to raise taxes. There’s no easy or good way to do it. You’re choosing between degrees of unpalatable options.

“Income Tax versus National Insurance: a reasonable question to ask. If you use Income Tax rather than National Insurance, there’s a couple of big differences.

“The first is that Income Tax doesn’t involve businesses. Therefore, the rate you would have to levy on people would be higher.

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“Instead of 1.25 percent, the rate would have been over two percent. You’ve talked about the impact on families so instead of a typical basic rate taxpayer, earning £24,000 and paying about £180, they would end up paying closer to £350.

“The burden on them would be significantly higher if you were using Income Tax, so we should bear that in mind.

“The other thing with Income Tax is that it’s not a reserved tax for the UK. We want to do this on a UK basis. The NHS is a UK institution.

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“It was important for us to do that on a country-wide basis. Income Tax has been devolved, so we wouldn’t have been able to do that.

“Lastly, there is a long history and tradition in this country of using National Insurance to fund the health service.

“When it was set up in the 1940s, it was done to do exactly that. Today, when people make their National Insurance contributions to HMRC, a portion of that money goes directly from HMRC to the NHS.

“That doesn’t exist for Income Tax.”

As well as National Insurance payments rising, the Government has also ended the £20 per week uplift to Universal Credit and Working Tax Credit amounts.

Some two million families on low incomes who get Universal Credit or Working Tax Credit will pay on average around an extra £100 per year in National Insurance contributions following the hike, according to research carried out by the Joseph Rowntree Foundation.

Peter Matejic, Deputy Director of Evidence and Impact at the think tank, outlined how low income households are set to be hit hardest by the Government decision.

Mr Matejic said: “This extra cost adds insult to injury for these families who are facing a historic £1,040 cut to their annual incomes when Universal Credit and Working Tax Credit are reduced.

“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 won.”

In response to this, many are calling for the Government to introduce an increase to Income Tax payments so HM Revenue and Customs (HMRC) can get more money from higher earners.





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