The tax rises have started…
The government announced two major policy changes that are likely to directly affect your finances. A much-anticipated National Insurance rise will result in an increased burden on workers and employers, including for the first time, those above State Pension Age. And the government has suspended the State Pension triple lock, meaning that pensioners will receive a much more modest increase than anticipated.
Despite a clear commitment in their last election manifesto not to raise taxes, the government has unveiled a 1.25% increase in National Insurance contributions from April 2022. This is to raise additional revenue to fund health and social care.
This additional contribution will then become a “health and social care levy” from April 2023 and will appear as a separate deduction on payslips, giving HMRC time to update their systems.
Alongside the National Insurance rise, Dividend Tax rates will also increase by 1.25% from April 2022. This change will mostly affect investors and business owners.
In another radical reform, around one million working pensioners will pay National Insurance contributions on their earnings from 2023. Under the current system, taxpayers stop making National Insurance contributions when they reach 66, the point at which the State Pension currently kicks in. It will be the first time that a government has asked pensioners to pay, with contributions starting at a rate of 1.25% in April 2023.
Social Care changes
Currently in England, if people have assets worth more than £23,250 then they must pay for their social care and there is no cap on the costs. Under the new system, anyone with assets below £20,000 will not have to pay anything towards their care from their assets but may have to make contributions from their income. Those with assets from £20,000 to £100,000 and above will have to contribute, on a sliding scale. This depends on contributions from local authorities, which deliver much of social care.
People in this bracket will not contribute more than 20% of their assets each year and, once their assets are worth less than £20,000, they would pay nothing more. However, they might still contribute from any income they receive.
Those with assets above the £100,000 threshold must meet all fees until the value of their assets fall below this amount.
Boris Johnson also announced a lifetime social care cap of £86,000, meaning that no individual will be asked to pay more than this sum for care in their lifetime, which is planned to start in October 2023.
Triple lock’s broken
In a move designed to save the government around £8 billion a year, work and pensions secretary, Thérèse Coffey, broke a second manifesto commitment by announcing that she was suspending the State Pension triple lock for one year.
She told the House of Commons that sticking to the triple lock – which promises that the State Pension will rise by the highest of inflation, earnings, or 2.5% – would be unfair, given that prices were increasing at a rate of well over 8% a year.
Tax rises were expected, perhaps not this soon.