Brexit and the National Insurance Increase: Fact or Fiction?
The recent announcement of an increase in National Insurance payments in the UK has sparked debate, with many attributing this increase to Brexit. However, the fundamental issue is more complex and rooted in how tax increases are reported rather than any direct link to the UK's exit from the European Union.
How Tax Increases are Reported
When it comes to reporting tax increases, the common practice is to express changes in terms of absolute amounts rather than relative percentages. This is to ensure clarity and simplicity for the general public. For instance, instead of stating that a rise is 10.41% of the previous year's amount, it is more straightforward to say that the increase is 1.25% of an employee's earned income. This approach avoids confusion and ensures that people understand the actual change in their tax liabilities clearly.
The increase in National Insurance payments is described as 1.25% of an employee's earned income. While it might be reported that this represents a 10.41% increase over the previous year's amount, it is essential to consider that National Insurance payments are only a fraction of the total tax paid by individuals. The larger portion of the tax burden is typically underpinned by Income Tax. Therefore, any significant change in National Insurance should be contextualized within the overall tax landscape.
Proponents of linking the tax increase to Brexit argue that the 10.41% figure is a substantial increase, misleading the public. However, this perspective is overly simplistic. Tax increases are not typically calculated annually but rather occur on specific occasions, such as indexation or reviews. The increase in National Insurance is an absolute one, distinct from inflation-linked rises. The percentage increase mentioned is a result of the comparison between the current and previous years' amounts, but it doesn't necessarily reflect the true impact on taxpayers.
The Context of the Increase
The overall tax burden for an individual is calculated based on how much they earn, with a portion allocated to National Insurance and the remainder to Income Tax. Therefore, any increase in National Insurance should be viewed in tandem with the additional Income Tax an individual might be paying. The total tax taken from an individual will still be a function of their income, with the exact breakdown depending on the individual's earnings and tax bracket.
The recent announcement coinciding with the ongoing impacts of the pandemic has fueled the debate. While some may argue that the increase is a result of political spin or grandstanding, it is important to recognize that the presentation of tax increases, including National Insurance, is a standard practice. The increase is reported based on the absolute figure, which is inherently different from the relative percentage increase. This is done to provide a clear and unambiguous understanding of the changes.
Politicians and policymakers who advocate for linking the National Insurance increase to Brexit often overlook the broader context. The National Insurance rise is an absolute adjustment, not a relative one. This means that the increase is a fixed amount, not a percentage of the previous year's value. While the figure is indeed significant, it is not a novel or unprecedented approach to reporting tax changes.
Conclusion: The Role of Brexit
Brexit, in itself, has little to do with the methods of reporting tax increases. The presentation of the National Insurance increase as noted above is a standard practice in the UK. However, the overreliance on Brexit as a scapegoat or motivator for political debate is a common tactic among politicians and some segments of the public. It is important to separate fact from fiction and confront the underlying issues in a rational and informed manner.
Remoaners, those who express continued dissatisfaction with Brexit, often blame the outcome on the event itself without considering the broader economic and political contexts. Many of these individuals have supported other spending increases or policy changes but have been unwilling to accept specific party affiliations for these actions. The debate over National Insurance and Brexit is a perfect example of how political narratives can overshadow the practical realities of tax reporting and economic policy.