Pre-budget report: Workers to pay more in National Insurance

Published on Wednesday 9 December 2009 13:48

ALISTAIR DARLING today announced that National Insurance contributions are to rise by one per cent.

The Chancellor said in his Pre-Budget Report that NI rates paid by workers, employers and the self-employed would rise by a further 0.5% from the start of the 2011/2012 tax year.

In this year's budget the Government announced that NI rates would be increasing by 0.5% in April 2011, meaning today's announcement constitutes a 1% rise in contributions.

The move will raise an additional 3 billion in revenue during the 2011/2012 tax year.

But Mr Darling also said he was increasing the level of earnings at which NI begins to protect those on modest incomes.

The threshold at which NI becomes payable will be raised by a further 11 a week from April 2011, on top of the previous increases announced,

meaning someone on 10,000 a year will be 110 a year better off.

The increase also means that people earning less than 20,000 annually will not pay any more NI despite the rate hikes.

The Chancellor also announced that public sector pay would be frozen to help reduce the UK's crippling national debt.

The Chancellor said public sector workers face a 1% pay cap from 2011, a move which provoked union fury.

During his speech to the Commons, Darling also announced that bankers' bonuses would be subject to a one-off tax.

Pre-budget report: How it affects you

Extra 23m for Scotland

Mr Darling laid out plans to slash spending from 2011 – after the General Election – as he admitted the economy would shrink by 4.75% in 2009 compared to his April Budget estimate of 3.5%.

He also said the public finances were deeper in the red with a deficit of 178 billion this year compared to the 175 billion he had predicted.

But he insisted in his Pre-Budget Report that the economy would start growing by the end of the year and next year would grow by between 1% and 1.5%.

The Chancellor predicted that British business would benefit as global demand picked up.

"So I am confident that the UK economy will start growing by the turn of the year, he said.

But, justifying his decision to postpone some major cutbacks, he went on: "Recent market reaction to financial problems in Dubai highlights just how fragile world confidence remains.

"So while I am confident that the UK economy is on the road to recovery, we can't be complacent.

"And we must continue to support the economy until recovery is established.

"To cut support now could wreck the recovery – that's a risk I am not prepared to take."

Despite increasing his deficit estimate he pledged to reduce it as the economy recovers, predicting it would fall to 96 billion in 2013-14, slightly lower than forecast in April, and 82 billion in 2014-15.

The Chancellor angered unions by announcing plans to cap public sector pay rises to 1% for two years from 2011.

He said that contributions from the state to the pensions of teachers, local government and health workers and civil servants would be capped, saving 1 billion a year.

Workers will have to make a greater contribution to pensions, with those earning over 100,000 paying more.

The Government said the senior civil service pay bill would be cut by up to 100 million over three years and any new government appointment over 150,000 and all bonuses over 50,000 would require Treasury approval.

Mr Darling gave a boost to pensioners announcing a 2.5% increase in the state pension next year.

And there was laughter from MPs when he announced a cut in bingo duty.

He confirmed that VAT will return to 17.5% on January 1 but added: "I have no other changes in VAT to announce."

As expected Mr Darling announced a levy on big bank bonuses.

Banks face a special one-off levy of 50% on any individual discretionary bonus above 25,000.

He said: "This will be paid by the bank not the bank employee.

"Anti-avoidance measures will be introduced with immediate effect.

"High-paid bank staff will of course also have to pay, as usual, income tax at their top rate on any bonus they receive.

"On a cautious assumption, which includes our expectation that some banks will rein back bonuses, this one-off levy is expected to yield 550 million.

"This additional money will be used to pay for the extra measures, already announced, like help for the young and older unemployed to get back into work."

He also announced a freeze in the 325,000 inheritance tax allowance.

Mr Darling also confirmed a raft of heavily trailed green measures including a scrappage scheme for inefficient boilers.

From April, people with a home wind turbine or solar panels who plug their excess power into the national grid, will receive on average 900 a year, tax free, he said.

And electric company cars will be exempt from company car tax for five years, the Chancellor announced.