National insurance rise: Rishi Sunak urged to scrap hike as increase leaves UK on brink
Boris Johnson warned of National Insurance 'gamble' by MP
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From next spring National Insurance tax will rise by 1.25 percentage point to help cover the cost of the NHS backlog and the social care crisis. The increase was confirmed and voted on by MPs last month, breaking a manifesto commitment the Tories signed up to at the last election.
The rise is due to come into force from April 2022 but there are fears the tax rise will have a detrimental impact on the UK’s economic recovery.
National Insurance is paid for by both employees and businesses and the Institute of Directors (IoD) fears one in three firms will be stopped from expanding due to the added costs of the tax.
A total of 31 percent of over 600 IoD members said they expected the higher levy on contributions would result in them employing fewer people in their businesses.
Commenting on the findings, IoD Chief Economist Kitty Ussher said: “This research is a stark warning to Government of the impact that the national insurance rate rise is likely to have on jobs.
“If, as they intend, three in 10 businesses decide to employ fewer people as a result of this tax change, the effect will be felt across the economy just at the time that the furlough scheme is ending.
“Since the March Budget, when the Chancellor announced a future rise in corporation tax, the economic bounce-back has brought in more tax than expected.
“Rather than raising the cost of taking on staff through higher employers’ national insurance contributions, he should be looking to support the companies currently suffering from skills shortages.”
The UK’s economic recovery has already stalled in recent weeks with figures released by the Office for National Statistics (ONS) yesterday indicating GDP rose 0.4 percent between July and August.
While it means the economy is now only 0.8 percent smaller than it was before the pandemic, the rate of growth was lower than originally expected.
The ONS downwardly revised its estimate for July to a contraction of 0.1 percent from the 0.1 percent expansion reported previously.
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It was the first monthly contraction since January when the UK was plunged into a third lockdown.
Growth rebounded strongly in the second quarter, with GDP rising by 5.5 percent, but the recovery since then has been sluggish, with supply chain problems and the lorry driver crisis holding back the economy.
The National Insurance rise passed through the Commons by 317 votes to 248.
However, despite overwhelmingly being backed by Tory MPs, many were worried at the time about the potential impact of the increase.
In light of the stalled economic recovery, some are demanding the increase be scrapped.
Former cabinet minister Sir John Redwood said: “Latest figures show economy is being slowed by higher taxes and threats of interest rate rises.
“Government should cancel the National Insurance rise.
“More growth is needed to get the deficit down.
“We are still not back to pre-Covid level.”
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