Government’s flawed NIC tax policy should be reversed immediately

The Government should immediately reverse its flawed National Insurance (NIC) policy to benefit working families, says Blick Rothenberg CEO Nimesh Shah.

“The Government’s direction to introduce a 1.25% NIC increase (the Health and Social Care Levy), announced last October, has put huge pressure on working families as the cost of living has risen dramatically. This change needs to be reversed and backdated to the start of the tax year.

“Rishi Sunak stubbornly refused to cancel or defer the NIC increase at the time of the Spring Statement. In hindsight, the measure was incredibly flawed. It would be politically difficult to reverse this now, as the Government cannot be seen to take funds away from the NHS and social care, but they could cancel the increase for those earning less than £50,000 so it only applies to higher earners. If the NIC increase could be cancelled for basic rate taxpayers, someone earning £30,000 would be £308 per annum better off, and someone earning £50,000 would be £557 per annum better off.

“From July, the NIC threshold is increasing so that it is aligned with the personal allowance of £12,570 per annum. This move was announced by the Chancellor in his Spring Statement in March, and leaves someone earning less than £41,389 better-off – but only by very little.

“The Government has recently been lauding July’s NIC threshold increase as a major tax cut, to support working families under the backdrop of rising inflation and the cost-of-living crisis. But in fact, it offers very little respite. Someone earning £30,000 will see their net monthly income increase by £30 from July, but they will only be £53 better off this tax year compared to the previous tax year. For someone earning £50,000, they will also see their net monthly income increase by £30 from July, but they will be £197 worse-off overall this tax year.

“All workers will see an increase in their net monthly income from July because of the NIC threshold increase, but the gains are relatively minor against the backdrop of soaring inflation. The Government needs to take immediate and serious action through changes in the tax system to correct this flawed policy.”

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