LONDON (Reuters) - Chancellor Alistair Darling announced plans on Wednesday to hike national insurance contributions by 0.5 percent from April 2011, raising an additional three billion pounds a year.
The government needs to raise funds to plug a budget deficit running at a record 12.5 percent of national income. National insurance, a payrolls tax, is the government's second biggest source of revenue.
To protect those on low incomes, Darling said he would raise the starting point from which national insurance was payable.
"No-one earning under 20,000 pounds will pay any more national insurance contributions as a result," Darling told parliament in his pre-budget report.
National insurance is currently levied on employers at rate of 12.8 percent and employees at a rate of 11 percent.
Editing by Mike Peacock