National insurance has risen, but what does it mean for you?

Outgoings for individuals are stacking up, as ITV News Social Affairs Correspondent Sarah Corker reports

National Insurance will rise for millions of workers around the UK on Wednesday as the cost of living crisis surges on.

Boris Johnson broke his manifesto promise in September when he pressed ahead with a plan to increase taxes in the form of the 1.25 percentage point hike, in order to fix what he called a "broken social care system," and to help ease the burden on the NHS as it recovers from a pandemic.

But what do the changes mean for you? Here's what you need to know.

What is National Insurance?

National Insurance is essentially a tax that counts towards your entitlement to the NHS, state benefits and pension.

It was introduced in 1911 to be a fund for people struggling with unemployment or sickness.

Employees pay National Insurance on their earnings, employers pay extra contributions for staff, and self-employed people pay it on their profits.What are the differences between National Insurance and income tax?

• Unlike income tax, the percentage of National Insurance contribution you pay does not increase much, the more you earn.

• As long as you earn more than £190 a week or around £9,880 per year, you pay National Insurance, whereas income tax does not kick in until after your wage rises above £12,570 per year.

• You stop paying NI payments after you hit pension age - although the government's new policy has changed this slightly.

• To qualify for a state pension and some benefits you must have paid National Insurance for 35 years - if you've faced a period of unemployment you can voluntarily contribute to catch up.

• Income tax thresholds rise as income rises, National Insurance is a flat amount up until you earn £50,000 and only increases slightly after that.

• It is UK-wide, whereas the four nations of the UK set their own rates of income tax.

What is changing from today?

From Wednesday, National insurance contributions will increase by 1.25 percentage points, so employees, employers and self-employed people will all pay 1.25p per pound on anything earned above the tax-free threshold.

How much will the new NI cost me?

The tax will be progressive, meaning those who earn more will pay more.

For example, a basic rate taxpayer earning £24,100 will contribute £180 a year and a higher rate taxpayer earning £67,100 will contribute £715 a year.

But what you need to earn before you pay will change again in July

In his Spring Statement in March, chancellor Rishi Sunak responded to the ongoing cost of living squeeze by raising the National Insurance threshold.

Mr Sunak said he was exempting the lowest paid workers from National Insurance contributions and income by lifting the threshold by £3,000 from £9,568 a year to £12,568.

It means anyone earning below that amount will not have to pay National Insurance or income tax.

So until July, anyone earning more than £9,880 but less than £12,570 will see their National Insurance contributions rise, but after July, they will be exempt from paying it.

Taking the higher rates and the higher threshold together, those earning less than around £35,000 will see a fall in their overall National Insurance bill in 2022-23 relative to 2021-22. Those earning more than this will see an increase in their overall National Insurance bill, according to the Institute for Fiscal Studies (IFS).

Money saving expert Martin Lewis said the decision to increase the National Insurance threshold was a 'good call'.

When will the National Insurance rate go back down?

From April 2023 onwards, the NI rate will decrease back to the 2021-22 level, with a new 1.25% health and social care levy legally introduced.

The UK Government predicts the tax rise will raise £39 billion over the next three years to help reduce the Covid-induced NHS backlog and later reform adult social care for the long-term.

What has the government said about the rise?

Boris Johnson has defended the decision to hike National Insurance, arguing that the manifesto-breaking rise is “necessary, fair and responsible”.The prime minister has said “We must be there for our NHS in the same way that it is there for us".

Health secretary Sajid Javid also defended the rise on Wednesday as he argued it is “right that we pay for what we are going to use as a country”.

Mr Javid told Sky News: “It’s going to pay in the NHS for activity levels that are some 130% of pre-pandemic, it’s going to be nine million more scans, tests and procedures, meaning people will get seen a lot earlier.

“Why is any of this necessary, whether it is for health or social care? It’s because of the impact of the pandemic. We know it is unprecedented. It has been the biggest challenge in our lifetime. The impact of that is going to continue for many years.”

He added: “When we spend money on public services, whether it’s NHS or anything else, for that matter, the money can only come from two sources. You raise it directly for people today, that’s through taxes, or you borrow it, which essentially you are asking the next generation to pay for it.

“I think it is right that we pay for what we are going to use as a country but we do it in a fair way. This levy, the way it is being raised is the top 15% of earners will pay almost 50%. I think that is the right way to do this.”

How have experts reacted?

Paul Johnson, director of the IFS, tweeted the £3,000 increase to the National Insurance threshold would “more than compensate about 70% of workers”.

But he added the chancellor's decision to freeze the income tax threshold for four years meant the "benefit will dissipate somewhat over time and breakeven salary will gradually drop". Michael Clarke, head of information programmes at the charity Turn2us welcomed the increased threshold for National Insurance contributions, saying it would help many low-income working families.

But he added: "When paired with rising inflation, soaring energy bills and increasing living costs, these measures mean those of us unable to work due to ill-health, or with children, are left behind.

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