The Prime Minister is being warned that increasing National Insurance contributions in April will lead to higher prices in the shops.

A report by the Commons Treasury Committee says that the planned hike could drive up inflation, during a cost of living crisis.

From April, employers and workers, including those who are self-employed will pay 1.25p more in the pound for a year. The extra tax will be collected as a new Health and Social Care Levy.

Those who are earning less than £9,564 a year, or £797 a month, will be exempt from the rise in NI contributions. 

For someone on an annual salary of £40,000, the levy would mean paying out an extra £260.

MPs are worried about the effects 

The government says the additional funds will raise £12 billion, which will go toward funding the NHS. 

But MPs are worried that as the Bank of England might have to raise interest rates again, and with inflation going up to possibly 7 percent by the end of the year, people would struggle to pay their mortgages.

The committee also said in its formal report on the Budget last October that Boris Johnson’s plan to increase salaries would make the issue worse, and create a “wage price spiral”.

It is feared businesses will pass on the additional costs to consumers through higher prices, as the 1.25 percentage increase also applies to employers.

The committee, chaired by Mel Stride, a Tory MP and former Treasury minister said: “The Chancellor showed in his speech that he is alert to the fiscal risks of higher inflation and higher interest rates becoming entrenched. The Treasury should keep these risks at the forefront of their thinking when designing policies at future fiscal events.”

The report also said that as the budget was healthy, the rise in NI contributions could be delayed till people were more financially secure.

It said: “The Chancellor has stated his ambition to cut taxes before the end of the parliament. In October, there was little room for manoeuvre, but there has been positive news from the public finances since then. 

“While further good news may help him achieve this ambition, significant risks remain, most notably from the impact of inflation.”

Some had hoped the report would put pressure on Mr Johnson to delay the increase but speaking to the BBC, Business secretary Kwasi Kwarteng said there would be “no U-turn” on the planned rises.

Mr Kwarteng said: “We’re totally committed to funding the NHS, clearing the backlog of the NHS, and also funding social care and the way to do that is through this tax rise.

He said: “That’s how we’re going to get the revenue to pay for the backlog and to pay for a sustainable social care system.” 





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Feyaza Khan has been a journalist for more than 20 years in print and broadcast. Her special interests include neurodiversity in the workplace, tech, diversity, trauma and wellbeing.