Conservative Prime Minister Boris Johnson has announced the largest tax increase since the 1970s to help fund social care and NHS spending, and it could have significant consequences for the UK’s economic recovery.

Reuters reports that while some Tory MPs have been angered by the breaking of some of their party’s election manifesto promised, the government has backed the tax hike. The £12 billion a year wanted by the government will mostly come from a 2.5 per cent increase in national insurance contributions – half paid by the employer and half by the employee.

The increase means the average worker on £25,800 will take home £244 a year less, and a household with two people on the average wage will have close to £500 a year less.

The Resolution Foundation think thank has said that a typical 25-year-old will now end up paying an extra £12,600 over their working lives from their part of the contribution, while most pensioners will pay nothing.

There are further hots to household incomes on the horizon too. The Chancellor of the Exchequer’s last budget included a four-year freeze on the thresholds for basic and higher rate income tax, meaning that workers will end up paying more.

When the £20-a-week uplift to universal credit is withdrawn next month, people on the lowest incomes will experience a £1,040-a-year reduction to their incomes. This will, intern, trigger a reduction in spending in the wider economy.

Businesses will need to deal with customers who have less money while paying an additional 1.25 per cent cost on employees’ wages.

According to the Federation of Small Businesses, smaller firms will pay an extra £5.7 billion, meaning 50,000 fewer jobs.

It means that by next April, working people will see their take-home pay reduced for a benefit they may not see for decades and could mean a slowing of the economic recovery.

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