Rising national insurance puts UK on track for record tax level

The independent research organization has also noted that further tax hikes could be considered, leading to a permanent increase in the size of the UK state and further suffocating workers and businesses recover from the pandemic.

“The two [government] spending and taxes will rise over the next few years, ”the IFS said in a study released after Johnson’s announcement on Tuesday, which snapped a 2019 election promise not to increase income tax or national insurance.

The latest changes will push taxes to their highest share on record in the UK economy, according to IFS research economist Isabel Stockton, meaning workers and businesses will be paying more of their income in taxes than ever before.

The new “Health and Social Care Tax” unveiled on Tuesday will raise nearly $ 36 billion ($ 49.5 billion) over the next three years through increased national insurance contributions. National insurance is paid for by the vast majority of workers in the UK, usually through automatic payroll deduction and qualifies them for certain social benefits and state pensions.

Under the plan, national insurance contributions will be increased by 1.25 percentage points for employers and employees, which is equivalent to a 2.5 percentage point increase in payroll taxes.

According to Johnson, the top-earning 14% of the population will pay about half of the income generated, with 40% in small businesses and those making less than 9,568 ($ 13,172) a year. pay nothing more at all.

However, workers will bear “overwhelmingly” the weight of the new tax burden, with very little income for retirees, according to the IFS.

“This is the latest in a long series of reforms that have shifted the tax burden towards the incomes of working-age people and away from the incomes of retirees,” said Tom Waters, senior research economist at the ‘IFS.

The money is intended to solve a long-standing funding crisis in health and social services, both of which face increased demand from an aging population.

Johnson described the plan as “the biggest catch-up program in the history of the [National Health Service]”, which is grappling with a chronic backlog of non-essential treatments that has been made worse by the coronavirus pandemic.

While some of the funds have been earmarked for social care, the IFS warned on Wednesday that four decades of experience shows NHS spending plans are “almost always completed”.

“If history repeats itself, the ‘temporary’ increases in NHS funding announced this week could end up permanently swallowing up the money raised by the tax hike, leaving little room for social care,” he said added.

British government spending on exiting the pandemic is expected to hit an all-time high in peacetime, according to the IFS.