ondon workers are twice as likely to be made worse off by the shake up of national insurance than those in the rest of the country, analysis by the Evening Standard shows today.
The first stage of the NI reforms kicked in on Wednesday with the rate for employees going up by 1.25 percentage points to pay for improvements to the NHS and social care.
Boris Johnson announced the increase last September, but in the March spring statement Chancellor Rishi Sunak cushioned the impact for the lower paid by raising the threshold by £3,000 to £12,570 from 6 July.
The two changes combined mean that employees earning up to a tipping point of around £34,000 will be better off in the 2022-23 financial year — but those paid more than £34,000 will lose out.
The median salary of London workers last year was £34,439, according to latest ONS data, meaning that half of them earn more than that and will be hit by a net cut in their pay in the latest “levelling down” tax raid on the capital.
However, the national median salary is £25,971 with almost 70 per cent of workers earning less than £34,000 and therefore benefiting from the Chancellor’s reforms. If London is excluded from the figures only about a quarter of UK employees earn more than £34,000. Although pre-tax earnings are higher in the capital, the far more expensive cost of living, particularly housing, leaves many working Londoners on middling salaries struggling to make ends meet.
Mayor Sadiq Khan said: “The cost of living in London, including its disproportionately expensive housing market, means that ordinary Londoners are already being squeezed. This tax hike will compound the existing cost of living crisis. Yet again the Government is simply making the wrong choices for people in our city and across the country.”
An employee on £25,000 a year will pay £124 less NI in 2022-23 than they did last year, while someone on £50,000 will pay £189 more. Nick Bowes, chief executive of the Centre for London think tank, said: “These changes are on top of London already contributing vastly more tax to the Treasury than is received back in terms of public spending. It cannot be taken for granted London will continue to fire on all cylinders and be the cash cow that pays the nation’s bills.
“London’s economy needs careful support at this time to ensure it continues as a successful global city, and squeezing it more when it is fighting to recover from the pandemic could be disastrous for the whole country.”
Health Secretary Sajid Javid today said the national insurance rise was the fairest way to raise the money needed to tackle the backlog in the NHS.
He told Sky News: “When we spend money on public services, whether it’s NHS or anything else, the money can only come from two sources. You raise it directly from people today through taxes or you borrow it, and then essentially you are asking the next generation to pay for it.
“I think it is right that we pay for what we are going to use as a country, but we do it in a fair way. The way it is going to be raised is the top 15 per cent of earners will pay almost 50 per cent, and I think that is the right way to do this.”
In 2020, the most recent year for which figures are available, Londoners made a net fiscal contribution to the Treasury’s coffers of £4,030 per head, by far the highest of any region.
Separate analysis today from the Liberal Democrats suggests that Londoners, who already contribute 20 per cent of NI despite representing only 13 per cent of the UK population, will have to pay £880 million extra this year.
The top-five London areas where residents face the biggest tax hikes are: Wandsworth (roughly £50.7 million); Westminster (£42.8 million); Lambeth (£36.8 million); Southwark (£36.8 million) and Kensington and Chelsea (£36.3 million).
Sarah Olney, MP for Richmond Park and Lib Dem Business spokesman, said: “By breaking their promise not to raise national insurance, the Conservatives are making the cost of living crisis worse and inflicting misery on people who are already struggling to make ends meet.
“Rather than hiking taxes when people can least afford it, the Government should be giving families a much needed tax cut. Liberal Democrat plans for an emergency cut to VAT would save families £600, keep prices down, and give our high street businesses the boost they need.”