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4 Things to Note About the National Insurance Rises

National Insurance rates are going up in April, by 1.25p on every pound. They’re designed to help pay for the increased burden that health and social care is going to place on society in the wake of the pandemic.

It’s intended to raise around twelve billion pounds, which will ensure that no one in England has to pay any more than £86,000 in care. Wales, Scotland, and Northern Ireland each have their own arrangements.

For employers, this change will have several consequences worth considering. Let’s look at a few of them.

More Administration

This temporary hike is in place for just a year (or, so we’re told). It will return to the old rate in April 2023, and the excess money will be collected not through National Insurance, but by a special levy enacted on everyone – including those collecting the state pension.

This means there will be an administrative cost on changing the rate on your payroll and making sure that you’re meeting your legal obligations, and changing it back again. Dealing with these administrative burdens might mean investing in the right systems and financial planning software.

Doing this now will help you not only over the course of the year but far into the future, too. It will help to reduce pressure on offices and allow business decision-makers to make more informed choices about the future direction of their organizations.

Increased Costs

The more work that your employees do, the more that you’ll be paying out in national insurance. Consequently, labor-intensive sorts of business are going to feel the brunt of the planned rise more than those which are heavily automated.

Given that the change is coming into effect immediately, it’s difficult to avoid this – though businesses might elect to mitigate it.

Reduced Investment

Since businesses will have to bear the cost of this rise in National Insurance, they’ll have less money available to invest in the future. The same is true of potential clients, partners, and suppliers. Everyone will be feeling the pinch.

Less Purchasing Power for Customers

A rise in National Insurance means less spending money for the general public. This in turn means less aggregate demand and fewer sales for businesses. This is especially so for businesses whose customers are predominantly high-earners.

If you’re earning less than £30,000, the effect of the changes might actually be positive, since the threshold at which employees start paying National Insurance will actually rise to £12,570 – as announced by chancellor Rishi Sunak in the Spring Statement.

This rise runs contrary to the Conservative 2019 manifesto pledge not to raise National Insurance. However, one might reasonably argue that the circumstances are extraordinary, given that the pandemic and the war in Ukraine have both changed the picture since that promise was made.

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