Rishi Sunak’s Four National Insurance Options Business

Rishi Sunak has locked himself in a corner with next month’s National Insurance (NI) raid. The Chancellor is facing pressure to rethink plans promised last September for a 1.25 percentage point tax hike on workers and their employers.

At the time, Sunak said he would raise £12billion a year, but the Office for Budget Responsibility believes the tax hike will raise more than £17billion.

It was offered as Britain’s economic recovery seemed on track in its post-Covid recovery: the biggest problem was finding a permanent flow of extra cash for an NHS which, already battered by the pandemic, needs resources in the long term to cope with the aging of the population.

But this seemingly easy way to earn more money came before households were hit by a cost of living crisis. A spike in energy costs has been made worse by Russia’s invasion of Ukraine, pushing up already high bills even further and threatening Britain with its biggest wave of inflation in 40 years.

How can Sunak get out of the dire fiscal promise, or at least soften its hard edges?

Give up the hike

“I strongly believe in lower taxes,” the Chancellor said last month. Given this stance, reversing his own tax hike might not seem too far-fetched.

But Sunak insisted that taxes were rising: he does not want to give up this vital money despite the blow to taxpayers. There is a need to avoid the ‘unpleasant and unacceptable situation’ of growing NHS waiting lists, he told the BBC’s Sophie Raworth over the weekend.

Revenue loss: £17bn

Probability: 1/10

Raise the threshold

Like income tax, NI is only paid on qualifying income. The threshold is currently just under £9,600 a year and is expected to rise to £9,880.

Raising that to £11,284 would effectively prevent the rate hike from hitting those earning below the average income of £27,500, according to proposals from the Center for Policy Studies.

This has the added benefit of aligning with the Conservative manifesto pledge to raise thresholds faster to help those on low incomes – although the party has also promised not to raise the NI at all.

Revenue loss: £4.7bn

Probability: 5/10