What is national insurance and why are the Tories planning to increase it?

Boris Johnson is preparing to announce a 1% increase in National Insurance (NI) for both employers and employees, according to reports.

The Times says the move will raise £10bn a year that will be used to fund “long-term reform” of social care while also reducing NHS waiting lists.

The prime minister and senior Tory officials have agreed that the one percentage point rise in national insurance contributions (NICs) - a penny in each £1 - will initially be used to address the “NHS backlog” following the Covid-19 pandemic, the paper adds.

The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Manifesto U-turn

Johnson and chancellor Rishi Sunak held “crunch talks” on Friday about how to fill a £7bn funding shortfall, The Sun reports.

However, plans to announce the resulting package this week were “plunged into chaos after the pair were forced into isolation” when Health Secretary Sajid Javid tested positive for Covid, the paper continues.

Regardless on when the announcement is made, the move to increase contributions would “smash the Conservatives manifesto commitment not to raise NICs, VAT or income tax in this parliament”.

The Guardian reports that former health secretary Jeremy Hunt backed an income tax rise, which he called a “health and care premium”. But Whitehall sources suggested that ministers were “leaning towards” an NI rise, says the paper, which notes that either option would “break the spirit” of the “triple tax lock” manifesto promise.

Who should pay for the rise in NI?

The plan to hike NI payments will “finally tackle the social care crisis” but has also been attacked as a “tax on the young”, The Independent says. Older people “would escape paying more” as ministers “appear to be backing away from a new tax on all over-40s, including pensioners”, in favour of increasing NI.

Torsten Bell, chief executive of the Resolution Foundation think tank, said that while tax rises will be needed to deliver decent social care, an NI rise was a “terrible way” to raise the funds.

“It’s a tax disproportionately loaded on to younger and lower-paid workers, compared to a fairer rise in income tax,” he said. “Why we would target a tax rise on the groups who have been hardest hit by the economic impact of this pandemic, while exempting older and wealthy individuals, is completely beyond me.”

Former government health adviser Andrew Dilnot, who is “the author of Johnson’s favoured plans”, believes pensioners should be made to pay NICs to help fund the social care reforms, The Telegraph reports.

Discussing proposals for funding the reforms, Sir Andrew told the Institute for Fiscal Studies that average income and the wealth of older people had “grown massively” over the past 50 years and that “it’s very important that charge should be paid by older people as well as younger people”.

What is national insurance?

NI is a tax paid by workers and employers that funds state-run public services. It is usually automatically deducted from workers’ pay packets via the pay as you earn (PAYE) tax code, and goes straight to HM Revenues and Customs (HMRC).

Under the current thresholds, workers pay mandatory NI if they are aged 16 or above and earn more than £9,568 (£184 a week), or if they are self-employed and making a profit of £6,515 or more a year.

The money raised is spent on the NHS, unemployment benefits, sickness and disability allowances, and the state pension.

Each worker’s NI payments determine which benefits they can receive, and what level of state pension they get when they retire.