The government has imposed a tax rise of £200 a year for people earning more than £43,000 through a change to national insurance contributions quietly released yesterday.
Philip Hammond made no mention of the measure but listed the tax rise in the small print of the policy documents that were released later.
The change is effective from next April and means the salary level on which people have to pay 12 per cent national insurance tax has been increased. Previously workers only had to pay 12 per cent on annual earnings up to £43,000, and after that they were subject to 2 per cent national insurance contributions. But from the start of the next tax year people will have to pay the 12 per cent rate up to £45,000 — the “upper earnings limit” — and only after that will the lower rate of tax be payable. It equates to an extra £200 a year of tax for people who earn over £43,000.
Under the Treasury’s forecasts released yesterday the tax grab from national insurance is going to rise sharply, by an expected £38 billion in the next five years. By contrast, corporation tax take is only forecast to increase by £9.9 billion over the same period.
The change will eat into the income tax savings that are due to come into effect next year that the government trumpeted yesterday. “Looking at the detail supporting the autumn statement . . . the chancellor is not fully passing on the income tax reductions to middle and higher rate earners,” Lindsey Kutten, a director at PwC, the accountancy firm, said.
Workplace salary sacrifice schemes, where everyday costs such as car parking fees and mobile phone contracts can be deducted before tax is due, are also being abolished. “Is national insurance becoming a gigantic stealth tax?” said Tina Riches, national tax partner at Smith & Williamson, a financial services firm. “There are changes on the horizon that will see an increase in overall levels of national insurance being paid by some employees and employers alike.”