I have two adult children, both have student loans, one is a brand strategist aged 28 and the other a lawyer, aged 25. The impact of the government’s introduction of a new tax to fund more spending on the National Health Service and social care has the effect of charging my kids 50% on any monies they earn above £27,288.
This makes me mad.
Both my kids are hard-working and successful, my son got a first from Durham and my daughter a distinction from her Law University. How can they be motivated to make the most of their education and serve the country in which they live and work if the government takes half of what they earn over £27,288?
And this is not the only ill-thought-out aspect of this new tax…
From April 2022, national insurance will go up by 1.25% both for workers and employers, taking the standard rate to 13.25% for employees and 15.05% for employers. Self-employed people will pay 10.25%, compared to 9% now (on Class 4). From April 2023, the NI increase will be replaced with a separate ‘health and social care levy’ which has the same effect, but will also be paid by pensioners still in employment (who don’t pay NICs).
This tax increase affects about 29million workers and means that people earning £30,000 a year close to the average wage – pay £255 more per annum and for those earning £50,000, the sum is £505.
In addition to NICs, there is also to be introduced a new tax of 1.25% on dividend tax rates, affecting investors in stocks and small business owners who pay themselves through their company.
Basic rate taxpayers will now pay 8.75% tax on dividends, higher rate payers will pay 33.75% and top-rate taxpayers will pay 39.35% (on all dividends exceeding £2,000 dividend tax-free allowance that sits on top of the £12,570 personal allowance).
The intentions behind the plan are good. They want to generate £12 billion a year in revenue to help clear the NHS backlog created by Covid, and then be directed towards long-term reform of social care. But raising the rate of NI on both employees as well as employers will hit firms hard after they have struggled to survive through the pandemic. These firms need to be encouraged to grow, not asked to bear new burdens and there is increasing evidence that the bounce back is stalling.
What will my kids make of this Conservative ideology?
Johnson’s tax amounts to £12 billion per year (about 0.5% of GDP) for three years. To that we can add the additional £25 billion from the upcoming increase in corporation tax (from 19% to 25% in 2023) and a freeze on tax thresholds
Together these tax rises are the biggest single increases in one year since the 1970s and will take the UK’s tax burden – tax revenues as a share of GDP- to 35.5% the highest since the 1940s!
The other irritant which will not be lost on my kids, is will this extra funding for the NHS and social care make any difference? It is obvious that the NHS has been wasteful and it’s hard to see that extra funding will make much difference to front line care.
How will businesses respond?
The aftermath of the pandemic has already seen a rise in remote working with the possibility of saving money on the rental of office space and a continuation of working from home. But we do not know yet what the long-term effects are on the younger generation.
My kids enjoy the comradery of office live, making new friends, sharing concerns and learning from those with greater experience in the office. This continued working from home could have a damaging effect on mental health and higher insurance claims as the young don’t have such easy access to their bosses.
Furthermore, there is also the risk that their efforts will not be so easily seen and so their career progression may also be stalled.
With these increases in tax, shops will double their efforts to sell online which will have a knock-on effect on our already threadbare high streets and will further isolate the vulnerable and mentally unstable.
It will also accelerate the use of digital technology in the office. CEO’s will restrict business travel and face to face meetings if video conferencing can be used instead. It will also have an impact on the hospitality sector focussed on business accommodation, events companies, and airlines.
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