The UK Chancellor Rishi Sunak has confirmed that his third Budget is due on Wednesday 27th October, along with the conclusions of the Spending Review which aims to identify how government departments can achieve savings of at least 5% in their spending.
But while these bodies will have to try and rein in their expenditure, businesses and workers across the country will be facing the repercussions from the recent announcement that taxes are to go up in the form of a 1.25 percentage point rise in National Insurance Contributions (NICs). This tax hike – breaking a Tory manifesto pledge – has left many people wondering how this will affect their personal and/or business finances.
It is both staff and employers who will be hit by this, raising the total rate of “employment tax” from 22.7% to 24.6%. The plan is that by 2023, NICs should return to their original levels and be replaced by a separate Health and Social Care levy that will be shown on staff payslips.
While everyone agrees that the social care system needs reform and greater funding, many in the business sector say this tax rise is not the way to go. They claim it is unfair as both the economy and the jobs market are still in recovery from the pandemic. Increasing NICs can only act as a milestone in these delicate times.
With many workers, particularly lower wage employees and small businesses being hit the hardest by this tax change – if you, for example, make £500 a week then 1.25% is far more significant an increase compared to someone making £10,000. This could have a negative impact on people across the country.
National Insurance is a flat fee for all businesses, meaning that factors such as profitability do not come into play. With the furlough scheme coming to an end soon, employers will be thinking twice about taking on extra staff with this 1.25% rise.
Another point to consider is that according to the Institute for Fiscal Studies (IFS), the gap between employees and those who are self-employed may widen as there are no employer NICs levied on the latter group.
In short, though this rise is well intentioned, there are many who feel that businesses across the UK will be hampered by it. If proven correct, then it is sadly yet another indicator that Britain’s recovery from the worst recession in 300 years is far from over.