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For the second time this year, the Chancellor will cut employee national insurance by 2p to 8% from the new tax year
Combined with the 2p cut announced at Autumn Statement 2023, this will save the average worker on £35,400 over £900 year.
The cut will come into effect from 6 April 2024 and will cost £9.3bn in 2024-25, rising to £9.9bn in 2028-29, the year tax thresholds are frozen until.
Chancellor Jeremy Hunt said: ‘The combined effects of these reductions to National Insurance means that a person on the average wage now has the lowest effective personal tax rate since 1975.’
However, this does not remove the threat of fiscal drag as tax thresholds are still frozen until 2028.
Effectively basic rate taxpayers will now pay a combined tax rate of 28%, compared to 32% on 5 January.
The basic rate tax threshold has been frozen at £12,570 since 2021.
Katharine Arthur, partner, haysmacintyre, said: ‘The further 2p cut to national insurance will be welcomed as a less expensive alternative to cutting income tax that still offers those in work a meaningful saving. However, income tax thresholds remain frozen, reducing the real impact of the national insurance cuts.’
Bruce Cartwright CA, ICAS chief executive, said: ‘By continuing to freeze the personal tax allowance, the government is putting more pressure on low paid workers, because as their earnings rise above the frozen threshold of £12,570, they will start to pay income tax.’
Another issue is the distribution of the national insurance cut, which does not benefit lower earners as much as an increase in the threshold.
Robyn Smith, assistant economist at the National Institute of Economic and Social Research, said: ‘Although the two per cent national insurance contributions cut gives households more cash in hand across income deciles, the lowest income deciles are set to gain 0.2% of their annual income whereas the top five deciles gain 1.4% of their annual income.
‘At a time where there is a desperate need to increase spending on infrastructure, education and health which benefit living standards for all, short-term measures such as tax cuts won’t boost living standards in the long term.’
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