It will increase by 1.25% for one year from April 2022, before the introduction of the 1.25% tax on health and social care, which retirees will also have to pay. Once the new National Insurance tax hike takes effect this year, the average worker will pay an additional Â£ 255 a year in taxes.
Put in perspective, this means that an employee earning Â£ 20,000 a year will have to pay an additional Â£ 130.
The highest earners with a salary of Â£ 50,000 would pay an additional Â£ 505.
Dividend tax rates, the payments made by a company to its shareholders after corporate tax, are also expected to rise by the same amount from April in a bid to reduce the state-run NHS backlog.
READ MORE: Pensions warning as Brits could be crushed by ‘scary’ tax code
However, people earning less than Â£ 9,564 per year, or the equivalent of Â£ 797 per month, will not be subject to the new levy.
Millions of UK workers will be affected as the government’s new Build Back Better plan will see the new health and welfare levy paid out of all earned income, including a charge for those working beyond retirement age from April 2023.
Such developments come as part of a government effort to raise Â£ 12 billion a year, or Â£ 36 billion over the next three years, to fund social costs.
The decentralized governments of Scotland, Wales and Northern Ireland will receive an additional Â£ 2.2bn per year as part of the tax.
DO NOT MISS
Martin Lewis shares exactly how much it takes for a retirement [INSIGHT]
A âfantasticâ way for savers to get âfree casesâh ‘-‘ Worth doing! ‘ [ANALYSIS]
Dave Ramsey suggests how a 60-year-old woman with little savings can get by [VIDEO]
Prime Minister Boris Johnson has said that while the tax hike was not part of the Tories’ initial pledge in the 2019 manifesto, the new measures are needed.
He said they were needed to ease the pressure that the Covid-19 pandemic has undoubtedly placed on the NHS.
Additionally, anyone with assets below Â£ 20,000 will have their childcare costs fully covered by the government from October 2023.
Those with assets between Â£ 20,000 and Â£ 100,000 will have to contribute to their costs, but will also receive state support.
Concerns have been expressed about the impact on the lowest paid employees.
Workers currently pay 12% National Insurance on income between Â£ 9,564 and Â£ 50,268, but anything above that justifies a measly 2% tax rate.
This means that when income exceeds Â£ 50,000, National Insurance becomes a smaller proportion of salary.
Yesterday, Commons Leader Jacob Rees-Mogg urged the Prime Minister to halt the hike in national insurance.
It is in the midst of rising inflation and energy bills that continue to push up the cost of living in the UK.
The Bank of England has said it expects annual price increases to peak above 4% and remain at the second quarter 2022 level.
The annual inflation rate fell from 2% in July 2021 to 3.2% in August of the same year (its highest level since 2012), and prices in the UK rose by 2.7% in in the last six months of 2021 only accordingly.
Meanwhile, in the United States, consumer prices rose 5.4% in September 2021, hitting a 30-year high.
Another Cabinet minister, Transport Secretary Grant Shapps, denied the criticism. Mr Shapps said Mr Johnson’s ministers have a collective responsibility to support government decisions, especially given the rising costs of social care in the UK.