Remember how Boris Johnson told us that with him as prime minister we were safe from income tax and National Insurance (NI) rises? Turns out (surprise!) that he was wrong. It seems his government has decided that NI is to rise by one percentage point – from 12% to 13% (an 8.3% rise) for those earning from £9,568 to £50,270 a year, and to 3% for incomes above that (a 50% rise). This, if it works as planned, should raise around £6bn a year – £12bn if employers also get hit with the extra percentage point. The money is to be spent on trying to cut NHS waiting lists and then on capping the cost of social care (in England – Scotland will just get its share of the loot for spending on whatever soon-to-fail project the SNP has in mind at the moment).
You may think this sounds OK – we have to pay for this stuff somehow, right? It isn’t. For starters, exempting those over state pension age and still working from the tax is a mistake. Some will say that the 67-plus group have already paid an awful lot of NI. They have. But the key point is that it turns out that an awful lot has not been enough (or we would be not be where we are now). You could argue that there is no such thing as “enough” when it comes to financing government spending. You would be right – but in itself that is not an argument for chucking a new element of intergenerational unfairness into the mix. If there is to be a hypothecated tax to finance a service anyone might need, then everyone must pay – it would be more honest, if politically trickier (because you can’t hide half the hit in employers’ NI) to just put a penny on our already-high income tax levels.
This brings us to the very idea of a hypothecated tax. We don’t have those in the UK. Your NI does not go on the NHS – it’s just a misleadingly-named extra income tax. Your road tax does not go on the roads. Your air passenger duty does not go on emissions mitigation. So what makes anyone think that this mooted extra penny on NI will actually go on social care rather than vanish into the black hole that is the public finances? Still it doesn’t matter what we think. What does matter is first that, while the social care discussion has been delayed until after the summer, your taxes are very likely to go up (despite the success of the UK’s vaccination programme and speed of our recovery); and second, that thanks to rising inflation and frozen allowances, they are going to go up even more than you think in inflation-adjusted terms.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
On to inflation. The place to start thinking about this is in this week's issue, where Cris Heaton reviews Russell Napier’s latest book (which you must read). The key takeaway is that the debt-driven fragility of today’s financial system is a direct result of the bad policy made in the wake of the Asian Crisis of 1995-1998. That kicked off the deflationary impulse in the West, that gave us the low interest rates, that gave us the Great Financial Crisis, that gave us quantitative easing (QE) – which is financing the huge rise in the money supply that is now giving us inflation. It’s worth understanding how this works – the dynamic will be with us for a long time to come. For more on the consequences of QE, see this' week's strategy page – John looks at how it has become a “dangerous addiction” for central banks. Then for a real-world take on the problem, Bill Bonner laments the rise in the prices of second-hand tractors. It doesn’t take long for the price of a tractor to affect the price of a loaf of bread. Best to be ready.
-
Why now is the right time to invest in biotechThe biotech sector holds huge potential for investors, with strong growth and attractive valuations. Here's the best way to play it.
-
Zoopla: Busiest home buying May since 2021, but property asking prices slideBuyers return to the market after the end of higher stamp duty thresholds and post-Easter lulls, but average sales are £16,000 below asking price
-
A new wealth tax is a terrible idea. The rich are already being hit by sneaky taxes – Merryn Somerset WebbOpinion Ideologues want to squeeze more tax out of the rich with a wealth tax. They’re already wrung dry, says Merryn Somerset Webb
-
Will Labour hike capital gains tax on business sales?Labour may tinker with capital gains tax (CGT) and trim related reliefs. What does this mean for small businesses?
-
Is it time for a global wealth tax?Labour is planning to implement wealth taxes if it wins the election. Will it pave the way for a global crackdown on the rich?
-
Conservatives pledge to cut National Insurance again – how much could you save?News A 2p reduction in National Insurance is a key feature of the Tory’s general election manifesto.
-
Spring Budget: What the latest National Insurance cut means for youNews Chancellor Jeremy Hunt announced a 2p cut in National Insurance in his latest fiscal update – how much could you actually save?
-
Budget 2024: National Insurance cut, a new British ISA, and reform of the child benefit charge - here’s what has been announcedThe chancellor has announced a host of changes, including cutting National Insurance again, and abolishing some tax reliefs. Here’s how the Budget will affect your finances.
-
Britain’s stifling tax burdenChancellor Jeremy Hunt's Autumn Statement will see the tax burden rise in each of the next 5 years.
-
Brace for a year of tax risesThe government is strapped for cash, so prepare for tax rises. But it’s unlikely to be able to squeeze much more out of us.
