National insurance rise: Government to ‘compensate’ public sector employers

The government plans to “compensate” schools and other public sector employers for national insurance contribution increases under new health and social care reforms.

Prime minister Boris Johnson today set out plans to increase national insurance contributions by both employees and employers by 1.25 percentage points from next April.

The so-called “health and social care levy”, which the government said would raise around £12 billion in extra funding each year, will be used to “tackle Covid backlogs” and reform adult social care.

Schools pay employer NI contributions on behalf of their staff, meaning their budgets will be hit.

However, the government intends to “compensate departments and other public sector employers” in England at the next spending review for the “increased cost of the levy”.

In its policy paper, the government acknowledged that if it did not take this step, then the “spending power of public services, including the NHS, would be reduced”.

The adjustment reduces the amount that is available from the levy to spend on health and social care by “around £1.8 billion per year”. It is not know what proportion of this will go to schools, or how the funding will be passed on.

However, public sector workers such as school staff will still have to pay the increase in their own national insurance contributions, as the compensation will only cover employer contributions.

The levy will be paid by employees earning more than £9,568 in 2021-22.

The government said a basic rate taxpayer earning the median income of £24,100 will be expected to pay an additional £180 a year, while a typical higher rate taxpayer on £67,100 would pay an extra £715.

Chancellor Rishi Sunak said the new levy was the “necessary and responsible thing to do to protect the NHS, sharing the cost between businesses and individuals and ensuring those earning more pay more”.

But the government has been criticised by Tory backbenchers for breaking a manifesto commitment not to raise taxes and by Labour, which warned NI increases would hit low earners and young people.