Rishi Sunak grilled by Andrew Marr over National Insurance rise
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National Insurance contributions will rise by 1.25 percent from April 6, 2022. According to recent research from NerdWallet, Britons are already preparing for this but how can people get ready properly?
In October, NerdWallet surveyed a national representative sample of 1,000 employed people residing in the UK. The results of this survey showed seven in 10 Britons will change their financial behaviour as a result of the hikes.
Of those set to alter their financial habits, half of respondents said they are already making a change, while the other half will wait until the National Insurance (NI) hike comes into effect before taking action. The NI hike itself is not the only financial worry savers are concerned about for the new year, as high inflation and rising energy prices are all contributing to the nation’s anxiety about its bottom line.
Unfortunately, even as savers attempt to get ready ahead of time, many are struggling to adequately prepare. According to NerdWallet, 67 percent are already struggling to stick with their household budgets.
However, even with budgetary difficulties, NerdWallet noted there are a number of options consumers are utilising to ease their financial problems. Most of the changes involve stretching take-home pay further and limiting expenses.
For example, 48 percent of respondents said they were looking into switching energy providers, with 16 percent stating they are definitely changing providers as a direct result of their reduced take-home pay.
Nearly a quarter (24 percent) of Britons will be shifting where they shop due to the hike, while half (50 percent) are considering a change. For non-essential spending, a smaller but noticeable change of behaviour is expected, with 21 percent expecting to cut back on social activities, eating out, and non-essential shopping.
NerdWallet spokesperson Connor Campbell said: “Deductions to the bottom line will always be unpleasant.
“But, before panicking, we recommend calculating the actual cost of the 1.25 percent hike on your net salary.
“Our research showed that four in 10 respondents did not know how much they currently spend on National Insurance. However, if you calculate how much you pay, and deduct the increase from your current budget, you will have a better idea of how it will impact you directly. For example, at a salary of £30,000 a year, you will pay an extra £21.30 a month.
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He suggested it is “good practice” to review outgoings and spending habits, particularly when there are changes to circumstances such as rate movements, new expenses, tax increases or salary adjustments.
Mr Campbell added: “In the case of the National Insurance hike, working out exactly how much extra you will pay a month will give you a better perspective on which financial habits, if any, need to be altered ahead of April 2022.”
The NI hike is the result of the Health and Social Care levy, originally introduced by Boris Johnson in early September. The levy was designed to help with NHS backlogs and to help raise funds for social care.
Employees, employers and the self-employed will all pay higher rates, with employees paying more on their wages, employers contributing more for their staff and the self-employed paying more on their profits.
The levy will also be paid by those of state pension age who are still working. Under the current plans, NI will return to its current rate from April 2023 and the proceeds from the lecy is expected to raise almost £36billion for the health and social care system.
Mr Johnson received a lot of criticism for this, with many arguing it was damaging to young workers and went against the Conservatives tax promises. However, the Prime Minister argued the changes were needed in the face of unprecedented difficulties.
Announcing the plans in Parliament, Mr Johnson said: “No Conservative Government ever wants to raise taxes, and I will be honest with the House, I accept this breaks a manifesto commitment, which is not something I do lightly.
“But a global pandemic was in no-one’s manifesto. I think the people in this country understand that in their bones and they can see the enormous debts this Government and the Treasury has taken.
“After all the extraordinary actions that have been taken to protect lives and livelihoods over the last 18 months, this is the right, the reasonable and fair approach, enabling our amazing NHS to come back strongly from the crisis, tackling the Covid backlogs, funding our nurses, making sure people get the care and treatment they need, in the right place at the right time, and ending a chronic and unfair anxiety for millions of people and their families up and down this country.”
On top of funding public healthcare, National Insurance contributions also count towards certain state benefits.
Currently, NI pays towards the basic, additional and new state pension. On top of this, it also counts towards Contribution-based Jobseeker’s Allowance, Contribution-based Employment and Support Allowance, Maternity Allowance and Bereavement Support Payment.
For employed workers, NI is deduced by an employer before wages come through. Self-employed workers will likely need to cover NI through Self Assessment tax returns.
Those who are not working may end up with gaps in their NI record which could in-turn impact benefit eligibility.
However, NI credits can be issued to help with this and voluntary contributions can be made. Full details on NI rules can be found on the Government’s website and impartial guidance can be sought from the likes of Citizens Advice and Money Helper.
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