National Insurance tax cut: what benefits will it bring?
Financial markets/economy
Posted by MoneyController on 23.11.2023
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The UK government has announced a cut in National Insurance contributions. What will this mean for savers' wallets? Will this offset the recent tax hike by the London government?
Chancellor Jeremy Hunt has announced that National Insurance (NI) tax will fall from 12% to 10% from 6 January 2024. The measure will affect up to 27 million people. As the Treasury explained in the Guardian, with reference to 2024-2025, this will mean an average annual saving of £450 for those earning £35,400 a year; for an employee (e.g. a nurse) earning £38,900, the saving will be £520; for a couple where both work, the saving will rise to an average of £900 a year.
There is also news for the self-employed. As Hunt explained, NI contributions will also be reduced for this category of worker, in this case from April 2024. Those earning £28,200 a year will see their contributions reduced by around £350 on average. Class 2 NI, a weekly payment of £3.45 per week for all self-employed workers earning more than £12,750, will also be abolished. Instead, the Class 4 contribution will fall by 1%.
However, this reduction does not mean that British taxpayers will pay less tax. As the Telegraph points out in an article by Szu Ping Chan, this is backed up by the Resolution Foundation, which has calculated that taxes will rise: "The percentage, which was 33.1% of GDP in 2019, will rise to 38%. This situation,' explains Torsten Bell, chief executive of the Resolution Foundation, 'adds to inflation and causes a fall in the real value of incomes (nominal growth is higher than expected, it is true, but the erosion of value caused by inflation must be taken into account).
This tax cut will cost the UK government ten billion pounds a year. However, taxpayers have recently been hit with charges that will offset this expenditure. In particular, there is talk of a decision to continue freezing and reducing personal tax thresholds until 2028: a measure that will allow the Treasury to raise around £44.6 billion each year.
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