Rise in national insurance contributions could pressure wages

pay_packet_lead_203x152The Chancellor’s decision to increase national insurance contributions might see a squeeze on wages, a think tank has warned.

The Institute for Fiscal Studies (IFS) has said that employees on just £14,000 a year could be hit as employers tighten wage rises to offset the increase in NIC tax charges.

Alistair Darling announced in the pre-Budget Report that, as of April 2011, NICs charges will rise by 1 per cent.

Employees will pay national insurance contributions of 12 per cent on earnings up to the 40 per cent income tax threshold. Above that the charge doubles from 1 per cent to 2 per cent.

There will also be a rise in employers’ NICs, from 12.8 per cent to 13.8 per cent. The self-employed will pay 9 per cent.

The threshold at which employee NICs are charged will rise correspondingly by £570 to help lower earners.

However, the measure has come under scrutiny because the increase in the £570 threshold does not also apply to employers.

David Phillips, an IFS economist, said: “National insurance is, ultimately, paid by workers. In the short-term, bosses might take on the cost themselves. But, in the long term, many employers will cut gross pay.”
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