Should the UK government ‘press pause’ on the NI hike?

Is now the right time for a tax hike? Here’s when the proposed NI rise takes effect, and why this might not be the ideal moment for an increase.

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.

Note paper with question mark on orange background

Image source: Getty Images

Let’s face it: no one likes tax rises. But with living costs spiralling and inflation at a record high, should the UK government suspend its planned hike in National Insurance contributions (NICs)? Here’s a look at what’s happening with National Insurance and why now is maybe not the time for a rise.

[top_pitch]

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

National Insurance: what’s going on? 

As it stands, NICs will go up by 1.25% from 6 April 2022. This will affect the majority of people working right now, whether employed or self-employed, and it will affect employers, too. 

How much you pay in NICs depends on how much you earn. If you’re employed and you earn less than £9,564 a year, then don’t worry – the rise won’t affect you. However, if you earn £20,000 a year, for example, you’ll pay an extra £130 on your tax bill. And if you earn £40,000, that’s an extra £380 to the taxman.    

Why is the UK government raising NI?

Well, there are two main reasons: the NHS and social care. 

Firstly, the NHS faces a huge backlog right now. The NI rise could help fund the NHS and cut waiting times, which could help more people get access to the medical treatment they need. 

Secondly, the government wants to overhaul social care. It aims to:

  • Cover social care costs for those with assets under £20,000;
  • Contribute to social care costs for those with assets worth between £20,000 and £100,000; and
  • Ensure no one pays more than £86,000 for social care, no matter how much money they have.

The government plans on funding social care reform through the NI rise. And at the moment, despite widespread criticism, the government is pressing ahead with the rise. 

[middle_pitch]

What does the NI rise mean for your money?

Unsurprisingly, the NI rise will pinch your wallet. So, here’s how you might manage the squeeze:

  • Start an emergency fund if you don’t already have one.  
  • Not got a savings account yet? It’s always a good time to open one – even a few pounds a week can go a long way eventually. 
  • If you’re self-employed, think about how the tax increase affects you and prepare for the higher bill in advance. 
  • Shop around for the best prices on things you need (e.g. food and petrol).
  • Up your pension contributions to lower your NI bill. 

Should the government pause the NI hike for now?

According to Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, the government should scrap its plans.

She explains: “There’s no doubt that the NHS and social care need the additional funding, but tax hikes weren’t considered during the peak of the health crisis, and they shouldn’t be brought in at the peak of a cost of living crisis either.”

So, although there’s a clear need to reduce waiting times, clear the NHS backlog and fund social care, an NI rise might not be proportionate right now. And if the UK government does press ahead with the rise, it should also act to reduce living costs for everyone. For example, they might look to reduce inflation and stop energy prices from rising further. 

Will the government ‘press pause’ on the NI rise, though? Right now, it’s uncertain, but we should learn more in the coming months. 

Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

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 »