State Pension prediction: Will National Insurance soon include pensions?
Pension: Expert discusses state pension tax
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National Insurance is to go up from 12 per cent to 13.25 per cent, the Government announced earlier this month in a shock u-turn from their manifesto pledges. The change is part of the Government’s plans to raise money for an overhaul of the social care system, beginning in April 2022. The new “Health and Social Care Levy” will raise almost £36 billion over the next three years and will push the UK’s tax burden on workers to its highest level, according to the Institute for Fiscal Studies.
And what’s more, the institute expects the tax burden to grow even more, likely to squeeze workers even more as the UK recovers from the coronavirus pandemic.
The IFS said: “Both [government] spending and tax will ratchet upwards over the next few years.
“Taxes will reach their highest sustained level in the UK.
“This was always going to be an inevitable consequence of ever-growing demands on health and social care, and would have happened eventually irrespective of the pandemic.”
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Despite the Tory’s being the party of small Government and low tax rates, the IFS’s predictions will likely ring true, given that tax has been rising for decades.
History has shown that tax rises are inevitable, with multiple taxes rising considerably in recent decades.
Insurance Premium Tax was introduced in 1994 at a modest 2.5 percent.
Successive Chancellors have increased it six times since then, and today it stands at 12 percent.
But it goes further – rising to 20 percent on travel insurance, electrical appliance insurance and some vehicle insurance.
A similar trajectory has been the case with Stamp Duty, which was a flat one percent in 1991, but today comes in at a top rate of 12 percent.
Express.co.uk’s Harvey Jones also believes this is not the end of the road for tax rises in the UK.
He said in an Express.co.uk comment piece: “Who’s to say the new National Insurance health and social care levy will not follow the same trajectory? Not me.
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“I’m not the only one worried. The Chartered Institute of Taxation was the first to realise that the new levy is a radical new revenue-raising opportunity.
“Director of public policy John Cullinane said it is NI “in all but name”. Crucially, it applies to all pensioners, although limited to their employment income for now.
“The Government wants us to think this is a special case but Cullinane sees it as “setting a precedent making it easier to bring pensioner earnings within the full scope of National Insurance at some point in the future”.
“The “full scope” could mean pensioners handing over 12 percent of their earnings to HMRC in NI, as those of working age already do.”
Mr Jones believes the Government might not stop there, and could extend National Insurance to cover pensions and savings.
He said: “After that, the next logical step would see National Insurance extended to income generated from pensions and savings, if it exceeds the personal allowance after being added to the State Pension.
“Politicians could sneak that through under the guise of intergenerational fairness.”
Any further tax changes will be announced in the Chancellor’s Budget on October 27, 2021.
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