Reports are swirling around that the government is planning to increase National Insurance by either 1% or 1.25%. While it’s being touted as a way to tackle the social care funding crisis in the UK, a National Insurance hike would disproportionately affect low-income earners.
Let’s break it down.
The impact of a National Insurance hike on low earners
The reality is that an increase in National Insurance would hit young households and those on low incomes more than an income tax hike would.
This is because only those earning over £12,570 pay income tax.
But if you earn above £184 a week or are self-employed and make a profit of at least £6,515 annually, then you are required to pay National Insurance.
So someone on an income of less than £10,000 a year would be affected by a hike in National Insurance contributions – but not if income tax was increased by the same amount.
In fact, the Institute for Fiscal Studies has suggested that if basic and higher rate income tax was increased by just under 1.5%, then it would raise a similar amount to a 1% hike in National Insurance. The key difference is that it would spread the burden and not disproportionately affect those on lower incomes.
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Support for low-income households
Finding your money squeezed even tighter can be a worry and financial stress can affect all areas of your life. So if you are worried about what an increase in National Insurance could mean for your finances, then it is worth being aware of the low-income support schemes are available.
Universal Credit
Universal Credit is there to help with your living costs. It replaces:
- Child Tax Credit
- Housing Benefit
- Income Support
- Income-based Jobseeker’s Allowance (JSA)
- Income-related Employment and Support Allowance (ESA)
- Working Tax Credit
How much you get will depend on your earnings, whether you have children and whether you have a disability or health condition that prevents you from working. You can use a benefits calculator to see how much you could be entitled to.
Free school meals
If you have children at school, then you may be eligible for free school meals and free school milk.
You can apply for this through your child’s school or your local council. Eligibility is based on income and whether you receive any benefits. You can check all that out on the gov.uk website.
NHS Low Income Scheme
We are very fortunate to have free healthcare in this country, but there are some health costs that we are required to pay.
The NHS Low Income Scheme is there to help you out with things like:
- NHS prescription charges
- NHS dental treatment charges
- The cost of sight tests, glasses and contact lenses
- The cost of travelling to receive NHS treatment
- NHS wigs and fabric support
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Take home
Money worries can be all-encompassing. While tax hikes may seem far removed, the reality is that they directly affect how much you have in your bank account.
If you are worried about how a rise in National Insurance contributions could impact your finances, then it is worth educating yourself on what help is available.
Something else to think about is doing a budget based on higher National Insurance payments. Understanding how much you have coming in and going out can help you to feel empowered when it comes to your finances. And preparing ahead of time for changes to your income can lessen the impact.
