Earlier this year, the government announced that national insurance payments for workers and employers would be temporarily increased by 1.25%, ahead of the introduction of a new 1.25% levy on health and care. social care. The move has drawn criticism because it is seen as a tax on working-age people at a time when the cost of living is rising. Mr Sunak defended the decision to increase national insurance rather than income tax today, during an interview on The Andrew Marr Show.
On the possibility of increasing income tax instead of national insurance, the Chancellor said: “Believe me, I wish I did not have to increase taxes. There is no easy or good way to do it. You choose between degrees of unpleasant options.
“Income tax versus national insurance: a reasonable question to ask. If you are using income tax rather than national insurance, there are some big differences.
“The first is that income tax is not about businesses. Therefore, the rate that you would have to charge on people would be higher.
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“Instead of 1.25%, the rate would have been higher than 2%. You talked about the impact on families, so instead of a typical base rate taxpayer earning £ 24,000 and paying around £ 180 he would end up paying closer to £ 350.
“The burden on them would be considerably higher if you used income tax, so we have to keep that in mind.
“The other aspect of income tax is that it is not a tax reserved for the UK. We want to do it in the UK. The NHS is a British institution.
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“It was important for us to do this across the country. Income tax was transferred, so we couldn’t have done it.
“Finally, there is a long history and tradition in this country of using national insurance to finance health services.
“When it was created in the 1940s, it was made to do just that. Today, when people pay their national insurance contributions to HMRC, some of that money goes directly from HMRC to the NHS.
“It doesn’t exist for income tax.
In addition to the increase in National Insurance payments, the government has also halted the £ 20 per week increase in Universal Credit and Work Tax Credit amounts.
According to a study by the Joseph Rowntree Foundation, some two million low-income families who receive a universal credit or a work tax credit will pay an average of around £ 100 extra per year in insurance contributions. national after the rise.
Peter Matejic, the think tank’s deputy director of evidence and impact, explained how low-income households are expected to be hit hardest by the government’s decision.
Mr Matejic said: ‘This extra cost adds insult to injury for these families who face a historic £ 1,040 reduction in their annual incomes when the Universal Credit and the Work Tax Credit are cut.
“This government will be responsible for the biggest overnight reduction in social security ever.
“With rising inflation, rising cost of living and rising energy prices coming in October, many struggling families are won over.”
In response to this, many are asking the government to introduce increased income tax payments so that HM Revenue and Customs (HMRC) can get more money from high earners.