Prime minister Boris Johnson announced the new social care package, which he called "the biggest catch-up programme" in the NHS' history in the House of Commons yesterday (7 September).
The 1.25 percentage point increase is expected to raise about £12bn, but it has been met with criticism from many.
Neil Carberry, chief executive of the REC, argued the tax increase would disproportionately affect lower earners.
He said: "As a tax on jobs, and a tax on activity rather than profits, rising National Insurance will fall more heavily on the labour intensive sectors most affected by the pandemic.
"The accompanying rise in taxes on dividends will also hit small limited company directors, who were denied any support during the pandemic.
"We all agree that social care needs more funding, but increasing labour taxes as we try to recover from the pandemic is not the fairest way to do it.”
MPs will vote later today on whether to pass Johnson's proposals, which the prime minister argued would help reduce the NHS' COVID backlog.
The tax is due to be introduced in April 2022, and will be paid by both employers and workers.
It will then become a separate tax on earned income from 2023, calculated in the same way as National Insurance and appearing on an employee's payslip.
Liz Sebag-Montefiore, director and co-founder of consultancy 10Eighty said the announcement has come at a challenging time,
She said: "It's not just a tax on employees, but also employer contributions which takes it up to 2.5%. For employers, there's less money in the pot and a lot of vacancies to fill making it difficult. Employers are going to feel hard done by too, given some haven't been making money since COVID-19, they're now paying more tax on employees and there's a lot of demand for flexibility.
Angela Matthews, head of policy at the Business Disability Forum, said while social care needed to be properly funded, higher National Insurance rates will not help disabled working adults.
She said: "For disabled people experiencing a minimally moving disability employment gap and typically earning less than their non-disabled peers or who are in ‘entry-level' roles, there appears to be little relief from these announcements.
"While it is absolutely clear that older people’s social care needs reform, once again, working-age disabled people have been forgotten. None of the case studies used in the paper are from the perspective of a working-age disabled person."
Think tank the Resolution Foundation said this approach increases the tax gap between the self-employed and employees, raising the incentive for firms to use self-employed labour rather than employees.
It argued these tax rises will fall disproportionately on the working age population, predicting a typical 25-year-old today will pay an extra £12,600 over their working lives from the employee part of the tax rise alone, compared with nothing for most pensioners.
However pension and rental income will not be taxed in the same way, despite two thirds of Britain's 1.9 million buy-to-let landlords classed as the richest fifth of households, the Resolution Foundation said.
Graham Griffiths, interim director at the Living Wage Foundation, said the increase particularly damages care workers who supported some of the most vulnerable in society throughout the pandemic.
He said: "Too many care workers are looking after our loved ones while being paid too little to look after themselves.
"Yesterday's announcement confirms that care workers themselves are being asked to fund social care reform through National Insurance contributions, so we ask politicians on all sides to commit the funding necessary to deliver a Living Wage to all care workers. It's time our key workers earned a wage that provides the stability and security we all need."
