For employers, employees and the self-employed.
Our state pension, benefits, health service and more are all funded by National Insurance contributions (NICs).
These are paid in different ways and at different rates by employers, employees and the self-employed, and they can also be paid voluntarily.
Recently, the differences in the way NICs are paid by those groups has created some controversy, and could lead to future changes to the National Insurance (NI) system.
A recent report by the Institute for Fiscal Studies (IFS) argued that the tax system, and especially the different NICs rates, tend to favour self-employment while discouraging employment.
Historically, self-employed people have paid lower NICs because they were eligible for fewer state benefits, but the IFS said this is no longer the case and there is now “no reason” for this disparity to exist.
The financial cost of COVID-19 may provide further impetus for reform, as Chancellor Rishi Sunak hinted when he first announced the self-employed income support scheme back in March 2020.
Sunak said: “I must be honest and point out that in devising this scheme … it is now much harder to justify the inconsistent contributions between people of different employment statuses. If we all want to benefit equally from state support, we must all pay equally in future.
That said, the Conservative Party’s 2019 manifesto included a pledge not to increase VAT, income tax or NI, so a major hike in NI seems unlikely for now.