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[b]Higher household tax burdens alongside increasing food and energy prices represent a damaging rise in the cost of living for many UK households. This is a risk to our narrative that consumer spending will drive the post-COVID-19 recovery. (IHS Markit Economist Raj Badiani)
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The UK government plans to introduce a new health and social care tax to finance the overhaul of the social care system and to allocate more resources to NHS England to help deal with the backlog of non-COVID-19 cases.
The plan entails a 1.25-percentage-point rise in the National Insurance (NI) rate during the 2022-23 financial year (from April 2022 to March 2023), paid by both employers and workers. Thereafter, the planned increase will exist as a new tax on earned income from April 2023, appearing as a separate calculation on employees’ payslips.
Currently, workers pay 12% NI on earnings between GBP9,564 and GBP50,268, and a rate of 2% is then applied to earnings above GBP50,268.
All working adults, including employed pensioners, are liable to pay the new tax, and the revenue raised is to be “legally ring-fenced” to cover health and social care costs.
Chancellor of the Exchequer Rishi Sunak has already announced plans to raise corporation and income tax by GBP25 billion in his March 2021 budget. The Office for Budget Responsibility (OBR) estimates that the planned personal and corporate tax changes proposed in the March 2021 budget increase the tax burden by 1 percentage point to 35% of GDP in 2025-26, its highest level since 1969-70.
The government announced that the personal income tax allowance will be raised to GBP12,570 from April 2022 but then will be frozen until April 2026.
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