NI increased to fund health and social care

The Prime Minister’s proposals to raise National Insurance (NI) to fund health and social care have been greeted with dismay across the whole range of business groups. 

It includes what the Government is calling a new Health and Social Care Levy, a UK-wide 1.25% increase in National Insurance contributions (NICs) ringfenced to fund the investment in health and social care set out in the plan. 

The proposal emphasises that 70% of the money raised from businesses will come from the largest 1% of businesses, while 40% of all businesses will pay nothing extra. 

The NIC increase will, the Government calculates, cost £255 a year for someone earning £30,000 and £505 a year for someone on £50,000. 

Key proposals 

The plan proposes that: 

  • people will no longer pay more than £86,000 in care costs - not including food and accommodation - over their lifetime, with effect from October 2023; and 
  • those with between £20,000 and £100,000 in assets will get means-tested help towards costs from their local council. Anyone with less than £20,000 will not have to pay towards care costs from their assets, but might have to contribute from their income. 

At first, the majority of the funds raised will go towards catching up on the backlog in the NHS created by Covid. 

The Government will invest £5.4 billion in adult social care over the next three years to deliver the funding and system reform commitments set out in “Building back better”. 

HR considerations 

Following this announcement, employers will have to prepare their payroll teams for the adjustment from next April, to ensure they are meeting their legal obligations and making the correct deductions from employee wages. It may also be of benefit to send a reminder email to staff, or update them through normal business channels, so they are aware in advance that there will be a decrease in their take-home pay, due to the increase in national insurance payments. 

Some employees will be understandably upset about this but there is no obligation on organisations to provide additional benefits or pay increases to cover the difference in net pay. Organisations can make their staff aware that this was not a business decision, but a necessary step mandated by the Government. 

All other contractual entitlements should remain the same. Individual businesses will have to assess the financial impact this might have on their organisation and make adjustments where necessary to ensure its long-term viability. If redundancies or changes to existing terms and conditions are needed, organisations must make sure they are following fair processes and fully consulting with staff before taking any action. 

Some organisations might be more inclined to hire individuals on a self-employed basis to avoid contributing towards higher NI payments. However, doing so may cause more problems if it is seen that there is an employment relationship in place and the individual is working under the wrong employment status. This could not only lead to a breach of employment laws and tribunal claims but also costly back-payments to the employee and HMRC. 

Further changes are expected from April 2023, including recording the increased national insurance rate on employee payslips as a separate “levy” deduction and making this deduction from working pensioners’ wages. Organisations should use this time to prepare themselves for the upcoming changes, so they don’t get caught out. 

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