Autumn Statement 2023: National Insurance cut by 2%

Autumn Statement 2023: National Insurance cut by 2%
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Peninsula Team, Peninsula Team

(Last updated )

The Chancellor has cut the rate of employee National Insurance by 2% to 10% to take effect in January, reducing total tax for basic rate taxpayers to 30%.

 The new 10% rate will come into from 6 January and the average worker earning £35,400 a year will benefit from a £450 annual tax cut, improving living standards for millions of people and rewarding hard work as the government builds an economy for the future.

The Chancellor Jeremy Hunt said it was time to cut ‘high employment taxes on 27m people working in the public and private sector who have to pay 20% income tax and 12% national insurance – I am going to cut the main 12% rate of National Insurance by 2% from 12% to 10%’.

The measure will cost £8.7bn in 2024-25 and the Treasury said employment was expected to rise as a result and some individuals will increase their working hours.

Richard Jameson, partner in the Private Wealth team at Saffery, said: ‘The cuts in National Insurance are a welcome development. However, it is being done amid such fanfare, while the effects of fiscal drag were done under the radar.

‘The cuts do not make up for the additional tax collected on higher rate taxpayers through fiscal drag by not increasing the tax thresholds in line with inflation.

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‘The timing of the NI cut, introduced from January, will hit pay packets in January onwards, which adds weight to the expectation of a May general election.’

The impact of fiscal drag was echoed by a number of commentators.

Rob Marchant, head of tax at Crowe said: ‘Tax cuts, or just a smaller tax rise when viewed over a longer period? Fiscal drag and high inflation have meant more people and businesses paying more tax more quickly than may have been expected.

‘Fiscal drag drags on. It was disappointing that no steps were taken to reduce its impact. A freezing of tax thresholds at a time of increased inflation has led to an increase in government tax receipts and additional tax complexity for many.’

Despite the very targeted tax change, this will give employees a boost in their pay packets from the end of January.

Faye Church, senior chartered financial planner, Investec Wealth said: ‘A cut in National Insurance from 12% to 10% will benefit lower and middle earners giving a much needed boost to take home pay.

‘The current system takes 12% of annual earnings between £12,570 and £50,270, so someone earning an average salary of £35,000 would save £450 a year. For someone earning £80,000 a year, they stand to save £754 a year.’ 

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