1.25% NICs rate increase comes into effect in April 2022

The 1.25 percentage point increase in National Insurance contributions (NICs) comes into effect in April 2022¹. It follows the Spring Statement, in which the Chancellor announced an increase in the NICs threshold of £3,000 rather than the £300 previously proposed, which the analysis says saves all but the lowest earners £330¹.

The threshold rise takes the point at which NICs become payable to £12,570, aligning it with the income tax personal allowance¹. From July, when the new policy is introduced, only one calculation is needed to convert gross to net earnings, and all employees will pay tax and NICs at a combined rate of 33.25% on earnings over £12,570¹. In weekly terms, the value of the tax and NICs allowance will be £80.40 a week from July, above the level of personal benefits such as Jobseeker's Allowance, worth £77 a week from April¹.

The interaction between the rate rise and the threshold change means the gain is wiped out at higher earnings. As earnings rise above £12,570, the effect of the rate rise cancels out the increase in the threshold, with anyone earning more than £35,000 paying more tax and NI overall¹. The analysis states that cutting the basic rate, as the Chancellor proposes to do from April 2024, provides most help to people earning at the top of the basic tax band on over £50,000 a year¹.

For working benefit claimants, the gain is smaller than the headline £330 because benefits are reduced as earned income rises. In Universal Credit (UC), the taper reduces the amount paid by 55p for every extra pound earned once a work allowance has been used up¹. For UC claimants earning just above the new NICs threshold of £12,570, the £330 increase in net earnings is offset by a reduction in UC of a little over £180, leaving a net increase of £150 a year¹. For claimants also receiving Council Tax Reduction, where the standard taper is 20% and the combined taper with UC is 64%, the net increase is not £330 but £120¹. The figure of 2.3 million working benefit claimants applies only to working people claiming Universal Credit¹. Working Tax Credit recipients are not affected by the clawback and receive the full £330 benefit, because tax credits are based on gross earnings before tax and NICs¹.

Why it matters for households

The rate increase applies to employees and the self-employed who pay Class 1 and Class 4 NICs, and it takes effect in April 2022¹. For workers earning above £35,000, the rate rise cancels out the higher threshold, so they pay more tax and NI overall¹. Workers earning just above £12,570 see the largest gain from the threshold change, though for the 2.3 million working UC claimants the benefit clawback reduces the net gain to £150 a year, or £120 for those also receiving Council Tax Reduction¹. Non-working benefit claimants who do not earn enough to pay NICs see no gain from the threshold change¹. The Spring Statement also included an extra £500m for the Household Support Fund, a discretionary scheme run by local authorities to provide emergency support, and a £150 rebate on Council Tax bills for anyone in Band D or lower¹.

What happens next

The threshold change takes effect in July, when the new policy is introduced¹. The Chancellor proposes to cut the basic rate from April 2024¹.