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Government considering a National Insurance rise to fund social care

The Government could increase National Insurance contributions (NICs) by 1% for both employers and employees, a report has claimed.

The Times said Prime Minister Boris Johnson and senior ministers have agreed to increase NICs to put an extra £10 billion into social care, to fund long-term reform and reduce NHS waiting times.

The majority of employers currently pay NICs at a rate of 13.8%, while most employees pay NICs at 12% of their earnings. The move would go against a Conservative party manifesto pledge not to raise NIC rates.

NICs go into the National Insurance Fund, from which state benefits are paid. The state pension is the most costly of these benefits, accounting for more than 90% of the Fund's annual outlay.

A review by the Government Actuary's Department (GAD) predicted the National Insurance Fund would be empty by around 2032, resulting in this being a rather large elephant in the room for many recent governments.

Even before the pandemic, the GAD said: "If the system is to continue to cover the current form of state pension and other benefits, then either the fund's income has to rise or expenditure has to be controlled."

Dismayed at the possible tax hike while many firms are still reeling from the COVID-19 pandemic, Mike Cherry, chairman of the Federation of Small Businesses, said:

"A lot of business owners have had their worst 16 months of their professional lives."

"Many firms are now struggling with staff being pinged, emergency loans and late payments."

"NICs essentially serve as a jobs tax, making harder for them to create opportunities."

"To hike them as the furlough scheme and wider support measures end would stop our economic recovery in its tracks before it's even started."

Any move could potentially take effect from April 2022.


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