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PwC Weekly Media Briefing - National Insurance increase and rising house prices


This week’s topics: 

  • The National Insurance increase for additional health and social care funding
  • Accelerating house prices
  • PwC’s climate targets validated by SBTi

The Government’s 1.25 percentage point increase in National Insurance Contributions for  health and social care funding

Marissa Thomas, head of tax at PwC, said:

  • The increase in national insurance contributions for both employees and employers is another clear signal that tax increases will form a big part of the post Covid world. The 1.25 percentage point rise is broadly progressive, meaning there is a relationship between payment and ability to pay. Unlike the existing national insurance contributions, it will be paid by pensioners in work, so the government can legitimately claim that it has tried to achieve a degree of equity across the generations.
  • The dividend tax increase represents a nod to taxing those who have more investment wealth. It not only impacts older people who don't work, but will capture business owners who take dividends from their business rather than a salary.
  • For employers, the increase comes at a time when businesses are steeling themselves for a jump in corporation tax from 2023. Employment taxes already account for a sizable chunk of the taxes directly borne by businesses. Our research shows that in 2020, employer NIC accounted for 25.7% of all taxes borne - those that come at a direct cost - by the UK’s biggest listed firms.
  • The levy marks a rare example of a hypothecated tax - one that is ring fenced for a specific purpose. Although uncommon in our tax system, when people have a clear idea of what the tax is being used for, it allows them to feel like they’re making a positive contribution and they tend to be happier to pay it. However, ring-fenced taxes are vulnerable to economic conditions.”

UK house prices hitting a record high

House price growth has been accelerating throughout 2021 and reached 13% on an annual basis in June. Data from Nationwide shows this trend has continued to August, with prices up 11% on an annual basis despite the end of the stamp duty relief on the first £500,000 of a property price

Jamie Durham, economist at PwC, says the continued strong price growth reflects a number of factors exerting upward pressure on house prices.

  • The stamp duty relief on the first £250k of property purchase until the end of September means homebuyers can save up to £2,500 if they complete before then. Consumers are estimated to have saved up to £200bn combined over the last 18 months, which together with the stamp duty holiday, means they can contribute more to their deposit and afford more expensive properties.
  • Interest rates remain low, and competition in the mortgage market means banks are keen to lend while products with a rate below 1% are readily available, supporting affordability. Estate agents have also reported relatively low supply, which means more people are chasing after fewer properties and can afford to spend more, pushing up prices.
  • The pandemic has led many consumers to seek out more spacious properties, which affect the mix of properties making up the average property price. The average price of a flat or maisonnette has risen 6% over the first half of the year while detached houses, which will typically have gardens, have risen 11% despite costing nearly twice as much on average.
  • It is likely that house price growth over the coming months will weaken somewhat as conditions normalise, however it is unlikely there will be a significant change, as the factors driving up the market are likely to continue, even as the stamp duty holiday unwinds.
  • One risk to the outlook is inflation. The headline rate of inflation in the UK currently stands at 2.1% and if sustained could put pressure on the Bank of England to increase interest rates, which would weigh on house price growth by limiting affordability. However, the risk is relatively limited as current rates of inflation are primarily driven by base effects versus 2020 and any movement interest rate is likely to be small in the first instanceHowever, the risk is relatively limited as current rates of inflation are primarily driven by base effects versus 2020 and any movement interest rate is likely to be small in the first instance

PwC’s climate targets validated by SBTi

PwC has committed to achieving net zero greenhouse gas (GHG) emissions by 2030.  In a significant step toward that goal, our climate targets and timeline have been validated by the Science Based Targets initiative (SBTi). Our targets align with the SBTi's highest ambition level, going beyond the more direct scope 1&2 emissions to encompass our largest, indirect scope 3 emissions.  

Our commitment calls for reducing GHG emissions by 50% in absolute terms from 2019 levels by 2030 - including a 50% absolute reduction in business travel emissions. With this approach, PwC commits to decarbonising the way it operates and decoupling its business growth from emissions.

Bob Moritz, Global Chairman of PwC, says:

  • Climate change is one of the most urgent problems facing our planet today. As part of our new strategy - The New Equation - we are renewing our commitment to be part of the solution. That is why we have committed to be net zero by 2030, and I am pleased the SBTi have validated our emissions reduction targets. Like our clients, we need to build trust with our stakeholders and deliver sustained outcomes - and tackling our climate impact is crucial to both.

Full details can be found here

Something to read:

Despite the rent moratorium being extended until March 2022, businesses are expected to settle rent arrears for periods they were able to operate without restrictions. What does this mean for landlords and tenants? Find out more in our latest PwC UK article 

Something to listen to: 

‘R for Robotics’, the latest episode in PwC UK’s A-Z of Tech podcast series, finds out how robots take on tasks that are ‘dull, dirty or dangerous’, and explores human - robot interaction. To hear about some of the ways robots are being deployed in manufacturing and software, follow the link below or search ‘A-Z of Tech’ on your preferred podcast service:

Something to watch:

Is Smart Insurance really that smart? Hear industry leaders including PwC UK's General Insurance Leader, Mohammad Khan, discuss the impact of technology on the insurance industry. Watch the Wales Tech Week 2021 session on demand, here

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Richard Pain

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