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What is the National Insurance threshold? How much is UK NI allowance - tax increase and 2022/23 contributions

Chancellor Rishi Sunak announced a £3,000 rise in the National Insurance personal allowance and confirmed the planned rise in NI tax contributions to pay for the NHS backlog

Workers will benefit from a higher National Insurance personal allowance threshold, chancellor Rishi Sunak has confirmed.

The chancellor, delivering his mini budget Spring Statement, reiterated the planned hike in NI contributions to raise funds for health and social care issues brought on by the Covid pandemic.

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Yet the UK government had come under increased pressure of late due to a cost of living crisis through soaring household bills, an increase to the energy price cap, spiralling inflation and higher interest rates.

A rise in National Insurance tax contributions, dubbed the new health and social care levy, breaches a Conservative Party commitment in its 2019 general election manifesto before the pandemic hit.

Now Mr Sunak has raised NI personal allowance by £3,000 in a move that could save workers hundred of pounds a year and offsetting the NI tax rise for many. Here’s what the new threshold will be and when it will take effect.

What is the National Insurance threshold?

The UK’s National Insurance threshold has been raised from £9,570 to £12,570.

This means that workers won’t pay any National Insurance on the first £12,570 of earnings from July 2022.

Mr Sunak told MPs: “Our current plan is to increase the NICs threshold this year by £300, I’m not going to do that – I’m going to increase it by the full £3,000, delivering our promise to fully equalise the NICs and income tax thresholds.

“And not incrementally over many years, but in one go, this year. From this July, people will be able to earn £12,570 a year without paying a single penny of income tax or National Insurance.

“That is a £6 billion tax cut for 30 million people across the UK. A tax cut for employees worth over £330 a year. The largest increase in a basic rate threshold ever. And the largest single personal tax cut in a decade.”

Responding to Mr Sunak’s statement, Paul Johnson, director of the Institute for Fiscal Studies (IFS), said the £3,000 increase to the National Insurance threshold would “more than compensate about 70% of workers”.

How much will National Insurance taxes increase?

National insurance contributions will rise by 1.25 percentage points for UK workers, prime minister Boris Johnson has confirmed.

The new health and social care levy will be paid by all working adults, including those over the state pension age - unlike other NI contributions.

Downing Street said that a typical basic rate taxpayer earning £24,100 would contribute £3.46 a week, while a higher rate taxpayer on £67,100 would pay £7.15 a week.

In addition to the health and social care levy, there will also be a 1.25 percentage point increase in the dividend tax - to ensure those who receive their income from shares also contribute.

No-one will have to pay more than £86,000 for care costs in their lifetime.

Scotland, Wales and Northern Ireland will receive an additional £2.2 billion in additional health and social care spending from the levy.

Why are National Insurance contributions increasing?

The impact and cost of the Covid pandemic has resulted in a substantial NHS backlog and need for social care reform.

PM Boris Johnson said the additional revenue would pay for the biggest catch-up programme in the history of the NHS in England.

The levy will raise £12 billion a year to help deal with the backlog of cases built up during the pandemic and also cover the reform of the social care system in England.

Mr Johnson told MPs he believed the tax hike was “reasonable”.

He said: “No Conservative government ever wants to raise taxes and I will be honest with the House - yes, I accept that this breaks a manifesto commitment, which is not something I do lightly.

“But a global pandemic was in no one’s manifesto and I think the people of this country understands that in their bones and they can see the enormous steps this government and the treasury have taken.

“After all the extraordinary actions that have been taken to protect lives and livelihoods over the last 18 months, this is the right, the reasonable and fair approach.”

When is the National Insurance rise taking effect?

The rise in national insurance contributions will take effect from April 2022.

From 2023, the health and social care levy element will then be separated out and the exact amount employees pay will be visible on their pay slips.

From October 2023, anyone with assets under £20,000 have their care costs fully covered by the state, while those with between £20,000 and £100,000 will be expected to contribute to their costs but will also receive state support.

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