Taxes: Britons face 50% ‘unfair’ tax rate on additional pay – how much will you pay? | Personal Finance | Finance
Prime Minister Boris Johnson and Chancellor Rishi Sunak outlined plans to raise National Insurance contributions by 1.25 percent for both workers and employers as part of the new “Health and Social Care Levy”. This additional tax is set to assist the Government in addressing the country’s social care crisis, which has been exacerbated by the pandemic. Despite Mr Johnson’s attempt to sort out a decades long issue, his new policy has faced criticism due to its impact on younger Britons.
If the National Insurance hike goes ahead, graduates who are still paying off their student loans will end up paying nearly half of their additional income on income tax, National Insurance contributions and student loan repayments.
From April 2021, those who have student debt and earn above the repayment threshold will pay a 49.8 percent tax rate on any extra increase in pay from their bosses.
According to research carried out by The Resolution Foundation, the tax increases will overwhelmingly affect younger taxpayers and people living in the North.
Due to this tax hike, the average 25-year-old in the UK is set to pay an additional £12,600 over their career.
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Comparatively, pensioners will not have to pay a penny as pensions and rental income are not set to be part of the new “Health and Social Care Levy”.
Number crunching from financial firm Hargreaves Lansdown found that someone who earns £20,000 a year will pay £1,382 NI a year after the tax is introduced next year.
This represents an increase of £130 to their current National Insurance bill, which they are paying in 2021.
Torsten Bell, Chief Executive of the Resolution Foundation, explained who is more likely to be impacted by these pending tax rises.
Mr Bell said: “While this new strategy fits well with the reality of a rapidly-ageing, and austerity fatigued, 21st century Britain, the PM’s new plan raises some major questions of fairness.
“The tax rises that will pay for a bigger NHS are generationally unfair, excluding rich retirees while prioritising wealthy landlords over their tenants.”
On top of this, the tax expert emphasised that the tax hike will not just discriminate based on age, but also terms of geography.
“And while the social care cap will prevent people being hit with catastrophic costs, it will benefit Southern households far more than those living in Red Wall seats,” Mr Bell explained.
“Ultimately, the biggest winner from yesterday’s announcement was the Chancellor, who has been able to bank the savings from a tough settlement for unprotected departments and from ditching the Triple Lock.
“Low tax conservatism may be in retreat in the Conservative Party, but fiscal conservatism is alive and well in the Treasury.”
Speaking in the House of Commons, Labour leader Keir Starmer voiced his opposition to the Government’s plans.
Mr Starmer said: “A poorly paid care worker will pay more tax for the care they’re providing without a penny more in their pay packet and without a secure contract.
“A tax rise on young people, supermarket workers and nurses. A tax rise that means a landlord renting out dozens of properties won’t pay a penny more, but the tenants working in full-time jobs would.
“A tax rise that places another burden on business just as they’re trying to get back on their feet. Read my lips: the Tories can never again claim to be the party of low tax.”
As mentioned, the Government’s increase on National Insurance contributions is set to be implemented in April 2022.