The increase in National Insurance Contribution (NIC) rates reveals progressive effects, despite its flat nature (+1.25 percentage points for all rates). Household disposable income will go down by almost 1% in 2022, a loss of £355 per family on average. However, poorer households are less likely to be affected than richer households. So the new levy makes UK households a little bit poorer but slightly less unequal.
- Analysis using UKMOD, the freely accessible tax-benefit model for the UK and its constituent nations, show that the new Health and Social Care Levy, involving a 1.25 percentage points increase in National Insurance Contributions, will bring to the Government coffers almost £19 billions in 2022 alone. This is roughly consistent with the OBR estimates, which report a lower average figure for 2022-2025, but acknowledge a decreasing profile over time.
- This will increase the average tax burden of the UK taxpayers by 0.8 percentage points in 2002.
- Despite the flat nature of the levy, this additional tax burden increases with income, from 0.1 percentage points in the poorest income decile, to 1.1 percentage points in the richest income decile:
| Household disposable income |
Average increase in tax burden |
| Decile 1 |
0.1pp |
| Decile 2 |
0.2pp |
| Decile 3 |
0.3pp |
| Decile 4 |
0.4pp |
| Decile 5 |
0.5pp |
| Decile 6 |
0.6pp |
| Decile 7 |
0.7pp |
| Decile 8 |
0.8pp |
| Decile 9 |
0.9pp |
| Decile 10 |
1.1pp |
| All |
0.8pp |
- This is because in poorest deciles fewer people are subject to the levy, as fewer people work. Moreover, those who work are more likely to be exempt falling below the Primary Threshold or Lower Profits Limit (£9,568 in the 2021-2022 tax year), or belong to some of the exempt categories (e.g. apprentices under the age of 25 or employees under the age of 21). The ‘no-NIC’ area is also proportionally more important for those with lower earnings, even when they are above the threshold.
- As a consequence of the new levy, household disposable income will go down by almost 1% in 2022, a loss of £355 per family on average. The profile of this loss is again increasing with income, in the population:
| Household disposable income |
Average losses
(£ per year) |
Average losses
(%) |
| Decile 1 |
-11 |
-0.11% |
| Decile 2 |
-32 |
-0.18% |
| Decile 3 |
-62 |
-0.29% |
| Decile 4 |
-101 |
-0.41% |
| Decile 5 |
-167 |
-0.58% |
| Decile 6 |
-246 |
-0.73% |
| Decile 7 |
-347 |
-0.88% |
| Decile 8 |
-490 |
-1.06% |
| Decile 9 |
-678 |
-1.22% |
| Decile 10 |
-1,470 |
-1.64% |
| All |
-355 |
-0.98% |
- Almost 15% of households in the poorest deciles will lose out due to the new levy, with the fraction of losers going up to 85% in the richest decile. On average, 57% of household will have to pay more taxes:
| Household disposable income |
% of losers |
| Decile 1 |
14.4% |
| Decile 2 |
30.7% |
| Decile 3 |
39.9% |
| Decile 4 |
48.4% |
| Decile 5 |
57.7% |
| Decile 6 |
66.5% |
| Decile 7 |
74.3% |
| Decile 8 |
79.8% |
| Decile 9 |
82.9% |
| Decile 10 |
85.3% |
| All |
57.2% |
- Due to the ‘no-NIC area’, the new levy will slightly decrease inequality in the UK, lowering the Gini coefficient by 0.3 Gini points.
- However, the reduction in disposable incomes will slightly increase poverty rates, from 16.2% to 16.3% with a fixed poverty line at 60% of the median equivalised disposable income before the reform.
- On average, poverty will increase more for households with children. Pensioners on the other hand will be unaffected for now, but they will be liable to pay the new levy from April 2023.