Increase to NI tax will hit lower earners hardest

The government announced yesterday that National Insurance will increase by 1.25% to fund health and social care reform. There will also be an increase in taxes on share dividends.

APSCo responded to the announcement by warning of the impact these increases will have on the workforce and businesses.

Tania Bowers, Legal Counsel and Head of Public Policy at APSCo commented: “While we recognise the need for social care and NHS integration and reform, this manifesto breach is a concern in more ways than one. With 1.25% payable by both worker and employer – 2.5% in total – this will only serve to drive umbrella and PAYE agency worker costs up, which will exacerbate the on-going shortage of workers that UK employers are currently struggling through.

“The increase in dividend tax will only add more pressure to already stretched businesses. While the worst of the pandemic may appear to be over, many organisations are still trying to find their way out of a deep financial hole that they’ve been stuck in for the last 18 months. And with skills shortages impacting the bounce back for firms, adding an extra financial burden too soon could have a detrimental impact on the recovery of a significant proportion of UK businesses.

The REC’s Chief Executive, Neil Carberry also weighed in on the decision:

“It’s vital that the social care system is properly funded – this has been a long time coming. But the 1.25% rise in National Insurance, the UK’s biggest business tax, is the wrong choice. As a tax on jobs, and a tax on activity rather than profits, rising National Insurance will fall more heavily on the labour-intensive sectors most affected by the pandemic. It also disproportionately affects lower earners. We all agree that social care needs more funding but increasing labour taxes as we try to recover from the pandemic is not the fairest way to do it.”

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