National Insurance rise could hit low earners the hardest

An increase in National Insurance would affect low earners. We break down what this looks like in reality and what support is available.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Piggybank, British Currency, Calculator, Receipts and a Mug on a Table

Image source: Getty Images

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.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

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.

[top_pitch]

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

[middle_pitch]

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.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »