National Insurance: A Plan to Blunt the Pain

National Insurance: A Plan to Blunt the Pain

With every week that goes by, the depth of the cost of living crisis becomes clearer – and the impact on households worsens. So the Government’s planned 1.25% rise in National Insurance Contributions, set to come into force in just two weeks, could not come at a worse time.

The Centre for Policy Studies has called for the Government to cancel or postpone the rise. But if it feels unable to do so, there is still a way to mitigate the impact for the lowest earners: raising the income threshold for paying employee’s National Insurance.

This proposal – put forward by the Centre for Policy Studies – was adopted by the Conservative Party in its 2019 manifesto as its signature tax cut, with an aspiration to raise the employee NI threshold to £12,500 over the course of the Parliament. However, since the pandemic this has been quietly dropped.

New CPS research finds that raising the threshold to £11,284, up from the currently planned £9,880, would protect low and median workers (who earn equal to or less than £27,500) from incurring a real terms tax rise of £182.21.

Doing so would only cost the Treasury a third of the receipts it expects to generate from the NI rise – approximately £4.7bn of the £12bn – and would limit the impact of the tax hike to the most affluent, as well as the businesses whose own NI contributions are also rising.

The Government should also consider transferring the £153 ‘policy levy’ on energy bills to general taxation, cancel the estimated £70 uplift to household energy bills and bring forward the uprating of Universal Credit to match inflationary pressures, as well as other smaller measures.

Robert Colvile, Director of the Centre for Policy Studies, said: 

“As families face rising energy bills and soaring inflation, the Government must ensure it is not actively making life harder for those on low and average incomes.

“By increasing the National Insurance threshold for workers, the Government can alleviate some of the cost of living pressures and allow households a small degree of respite.”

Robert Colvile, Tom Clougherty - Wednesday, 16th March, 2022