Small business owners face increased national insurance contributions

Small business owners and employees would pay extra 1% on national insurance contributions to fund growing social care problem

UPDATED: The government is pondering whether to increase national insurance contributions for both small business owners and employees to fund reform of social care.

The Treasury is debating whether to increase both employer and employee national insurance contributions by 1 percentage point – a penny in every pound both small business owners and their employees pay, according to the Times.

Employers currently pay 13.8 per cent as the main national insurance rate with employees paying 12 per cent of their earnings.

>See also: Government ‘should write off’ £1.7bn of Covid loan debt

Increasing national insurance contributions by 1 percentage point – for both employers and employees – would raise £10bn a year and would probably be dubbed a new “health and social care levy”.

Initially, it would be used to cut alarming NHS waiting lists for treatment, which are feared could rise from 5.3m to 13m patients.

It would then be spent to cap care costs, along the lines of a decade-old proposal to limit costs to £50,000, so families do not end up selling their homes and plug growing gaps in care treatment.

>See also: 20% of business workers self-isolating due to Covid

However, increasing national insurance is contentious as it affects people of working age rather than those who have already retired.

Health secretary Sajid Javid apparently presented the proposal to prime minister Boris Johnson and chancellor Rishi Sunak on Friday, before testing positive for coronavirus – and sending all three politicians into self-isolation.

Predictably, the move has provoked howls of outrage from small businesses.

Mike Cherry, national chairman of the Federation of Small Businesses described the move to hike national insurance as “astonishing” given the huge amount of damage done to small businesses over the last 16 months.

Cherry said: “The government cannot be serious about a strong economic recovery if it thinks hiking the jobs tax is a good idea … it is astonishing that just 24 hours after many businesses were able to re-open, ministers think now is a good time to land small firms with this bombshell.”

He said that the last thing the government should be doing is increasing the risk of an unemployment spike just as the job retention scheme winds down. For the government to go back on its promise to rule out NICs increases in its manifesto would shatter trust among the small firms and sole traders on which our recovery will depend, he said.

Mr Johnson refused to re-commit his government to the Conservatives’ 2019 manifesto pledge not to increase national insurance or income tax during yesterday’s Downing Street press conference – which he joined remotely from Chequers.

Asked by the Sun if the government was sticking to its pledge not to increase taxes, Mr Johnson was evasive: “On the long-awaited plans to deal with … social care, a problem that has bedevilled governments for at least three decades… you’ve just got to wait a little bit longer.”

Further reading

The benefits of national insurance

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...

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