Tag Archives: national insurance contributions

Reforming National Insurance Contributions

There has been much talk recently about how we are going to raise money to fund public services, and National Insurance Contributions (NIC) is usually the option the Treasury takes. This is predominantly because the public see NICs as something distinct from general taxation.

However, continually raising NICs hurts the income of working people, depresses wages and is generationally unfair.

NICs is only levied on those aged 65 and under, this explains to an extent why it is still seen as a contribution rather than a tax. However, with life expectancies rising and insufficient pension savings, people are working much longer. Raising …

Posted in News and Op-eds | 19 Comments

Hammond is right to break the Conservatives’ National Insurance pledge

Philip Hammond’s decision to raise National Insurance contributions (NICs) for self-employed people has been the most eye-catching and controversial aspect of the budget. No less captivating for a Liberal Democrat has been our party’s response. Lib Dems are understandably keen to hammer the Tories for breaking a manifesto promise. And MPs have been quick to paint themselves as the defenders of entrepreneurs and small business people (though patronising them as “White van man” is probably unwise).

For all that, the Chancellor’s policy is right – though it goes only a tiny way to treating all workers equally and fairly. Let us look first at the tax break and then deal with some objections.

  • Employees pay class 1 national insurance at 12% on earnings from £155 to £877 a week and 2% on earnings above that. The weekly sums are supposed to equate to £8,060 and £43,000 a year.
  • Employers also pay 13.8% on top of what the employee pays. Despite the myth that “employers pay” and that this comes out of profits, this is a tax on employed people’s wages. This is the biggest part of the injustice in the tax system and the chancellor has not touched it.
  • Self-employed people pay class 4 national insurance at 9% on profits between £8,060 and £43,000 and 2% on profits above £43,000.
  • Self-employed people also pay class 2 national insurance at a flat rate of £2.80 a week if they earn over £5,965 a year. So silly is this policy that George Osborne killed it (from April 2018). Interestingly, as part of that it was announced that class 4 national insurance would be increased to compensate, so there is some cover for Mr Hammond’s move.
  • Those incorporated as companies are able to take their income as dividends rather than salary, and so avoid NICs altogether.
Posted in News | Also tagged | 18 Comments
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