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National Insurance payments are increasing in the UK this April. I am seeing arguments against this that say the increase will have a higher impact on the lower-paid.

This BBC article shows the new payment structure in the following image:

enter image description here

It than makes the following statement:

"There are concerns the increase will have a higher impact on the lower-paid.This is because workers pay 12% National Insurance on earnings between £9,564 (£9,880 from April) and £50,268. However, earnings above this amount attract a rate of just 2%.So, if your income rises above £50,000, National Insurance takes a smaller proportion of your wages."

But, I calculated the total new NI annual payment for both £20,000 income and £100,000 income - and my workings show that the NI payment makes up 6.7% of both wages.

1. Income: £20,000
New April NI contribution: £1,340
% of wage: 6.7%

2. Income: £100,000
New April NI contribution: £6,967
% of wage: £6.97%

Have I misunderstood the BBC comment about the way in which it will negatively impact people on lower incomes compared to those on higher incomes? Is the 12% Vs 2% rate only on a certain amount of their income, after a certain threshold, as opposed to the full income, in the way that I've worked out?

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    There is a Personal Finance & Money site, which might be better suited to answer the tax calculation here.
    – James K
    Commented Jan 30, 2022 at 10:54
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    You should determine how much the current NI contributions are for each example too. If, as an example, people on 20k saw the rate change from 5% to 6.7% and those on 100k saw it change from 6% to 6.97% then the statement that the less well off are harder hit by the change would be justified even though the high earners are paying a slightly higher percentage. This might also be referring to the very well known fact that taking 100 a week from someone who is barely getting by hits them a lot harder than taking 500 a week from someone who has a large income surplus over what they need to live
    – Eric Nolan
    Commented Jan 31, 2022 at 10:27
  • Judging impact is a subjective matter, due to the various measures of impact (percentage, absolute value, percentage increase, absolute increase, subjective perception of fairness, complexity of calculation, etc).
    – Stuart F
    Commented Feb 1, 2022 at 10:38
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    Related report on whole tax changes impact. Might try to turn into an answer later; theguardian.com/business/2022/feb/13/…
    – Jontia
    Commented Feb 13, 2022 at 8:56

2 Answers 2

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I think you are misreading the BBC. From your quote:

So, if your income rises above £50,000, National Insurance takes a smaller proportion of your wages.

So we compare the proportion at £50k and at £100k. From the figure at £50k you pay £5,315 which is 10.63%, at £100k it is 6.967% as you calculate. Wikipedia has a good graph that shows this:

Percentage IT and NI and Marginal Taxrate

One can see in the graph that the percentage going to National Insurance starts falling at an income of around £50k, just as the BBC claimed.

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    When did NI and Income tax change points get aligned? There used to be a sweet spot where NI dropped before Income tax increased.
    – Jontia
    Commented Feb 2, 2022 at 9:05
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The Intergenerational Foundation report released on 14th Feb 2022, covers the effects of all the current changes in taxation and welfare support. While a lot of the report focuses on the difference in outcomes for younger and older people, covering the length of time people will pay these additional charges vs protections for accrued wealth, the report does spend some time on the types of income effect calculations highlighted in the question.

The focus here is not on absolute, or even percentages amounts, but on the changes that will be applied to each income level. From pg 12 of the report.

...low and middle earners face the largest increase to NICs as a proportion of income, facing an increase between 1.5–2.3pp between £10,000 and £41,000. Their higher-earning counterparts, however, will face an increase of less than 1% for income over £70,000, and earners with a real income between £50,000 and £60,000 will experience a very minimal proportional increase to their NICs by 2026.

NIC are also only payable on earned income, unearned income from investments, dividends and the like are not subject to NIC. While the IF report focuses on the likelihood of younger people having less, or no, unearned income, the same is fairly obviously true for those on lower wages who have less disposable income to invest in these strategies.

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