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Last Updated: Sunday, 6 April, 2003, 03:00 GMT 04:00 UK
Q&A: National Insurance rise
From April 2003 many Britons will have to pay more National Insurance. BBC News Online examines the implications.

How much are National Insurance contributions going up by?

From April you will have to pay an extra 1p in the pound through higher National Insurance (NI) contributions.

Employees, self employed and employers alike will have to pay the extra penny tax.

The rise was announced by Chancellor Gordon Brown in the last budget and is meant to fund increased spending on the National Health Service.

I pay NI but my mother is approaching retirement and earns only a little. Will she have to pay the extra tax?

Anyone of working age earning more than 89 per week pays NI on their earning up to a maximum of 585 per week (595pw from 6 April).

However, there are about 100,000 women who elected between 1948 and 1977 to pay a reduced rate of NI, called the "married women's reduced rate".

The rate is currently charged at 3.85% well below the standard rate of employees' NI, which is currently 10%.

But they will have to pay 4.85% from April - an increase of more than a quarter.

From April, their payments will incur an additional 1% of all earnings above the lower earnings limit threshold, the same as all employees, employers and self-employed workers.

My mother pays the reduced rate: it seems like she is going to be in a tricky position.

The real sting in the tail for people paying the married women's reduced rate is that lower contributions spell limited state help.

By electing to make reduced contributions, women had to forfeit their right to their own pension.

The assumption was that if the husband was under 65, he would still be in work and his wife would enjoy the support of his wages.

The wife would then receive a pension at a rate of 60% of her husband's pension.

It also disqualified the women from other benefits, such as incapacity benefit.

Will top earners pay more?

Unlike previous rises in NI contributions this increase will have a greater impact on the wealthy.

For the first time the government has decreed that the extra penny rise will apply on earnings above the upper earnings threshold (595pw from April).

At the time of the announcement some wealthier individuals could be forgiven for breathing a sigh of relief.

There had been some talk that the upper earnings limit on NI contributions was going to be abolished.

This could have seen annual tax rises for the rich not in the hundreds but the many thousands.

Why are some businesses angry about the rises in NI?

The government collects NI contributions from businesses as well as people.

The NI hike will make it more expensive to employ at a time when the economy is slowing and many firms are creaking under the burden of maintaining expensive employee pension schemes.

Self employed business people - the engine of the UK economy - may feel they are facing a double tax blow.

They face having to pay extra on their own wage and those of their employers.

All in all, if the economy continues to turn sour - as many economists predict - the extra cost to business could lead to an uptick in UK unemployment.

Why was there a year's delay between the announcement and the tax rise?

At the time of the original announcement the government's finances were in good shape.

In short, they were bringing in more money than they were spending, even with big expensive projects renewing the NHS in the pipeline.

As a result, the government took the less politically painful and unprecedented step of delaying the tax rise - sweetening the pill a little.

However, since then, many observers believe the government's finances have taken a sharp turn for the worse.

Tax revenues have been lower than originally forecasted as a result of sluggish economic growth.

And, with the government committed to increase spending on public services, there is a growing fear that a financial "black hole" may be developing.

And if that happens, this April's NI rise may be the first of many.

Gordon Brown delivers his next budget on 9 April.




SEE ALSO:
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