Budget 2024: Chancellor expected to announce a 2% cut in National Insurance

Chancellor Jeremy Hunt is expected to announce a 2% cut in National Insurance for 27 million workers in the UK.

This afternoon’s budget could be among the final major opportunities to influence undecided voters ahead of a general election, the date of which remains unannounced.

The National Insurance reduction, the second in less than four months, is set to be the highlight of today’s spring budget.

The 2p in the pound cut aims to deliver an average saving of £450 for employees.

According to media reports, Chancellor Hunt and Prime Minister Rishi Sunak have decided against reducing income tax rates, influenced by recent adjustments from the Office for Budget Responsibility (OBR).

The OBR, an independent fiscal watchdog, has significantly lowered the fiscal headroom available for the government, from about £30 billion in December to just £12.8 billion. This adjustment is due to higher government borrowing costs and lower-than-expected tax receipts.

Choosing national insurance cuts over income tax reductions reflects not just the difference in cost—£10 billion a year for national insurance compared to £13.7 billion for income tax—but also concerns about potential inflation.

Moreover, reducing income tax would benefit a wider demographic, including pensioners, making it more expensive.

Expected announcements also include a new levy on vaping and an increase in tobacco duty, potentially generating around £500 million annually, there will also be a freeze fuel duty for another year.

According to The Times, “The chancellor is considering reducing projected increases for future public spending from 2 per cent to 0.75 per cent, despite warnings that this could lead to significant reductions for unprotected departments.”

Welsh Finance Minister Rebecca Evans has stressed the urgent need for investment in public services and addressing the ongoing cost-of-living crisis by advocating for adjustments to Universal Credit to ensure people can cover essential costs.

Additionally, the unified call from all parties in the Senedd for greater budgetary flexibility underscores the pressing need for investment to strengthen the economy and support public services.

Ms. Evans stated, “The Chancellor’s priority must be the essential investment required for public services we all depend on. This includes more funding for pay and public sector pensions. We’ve made tough decisions in Wales to prioritise funding for crucial services. In contrast, the UK Government’s current spending plans suggest a real-term cut to NHS funding in England next year.”

“Not increasing funding for public services in the Autumn Statement has put hospitals, schools, and other essential services under tremendous strain, severely affecting their future viability. This trend must be reversed.”

“The cost of living crisis persists. After a decade of welfare reforms, the social security safety net is insufficient. The UK Government should urgently respond to the calls from the Joseph Rowntree Foundation and Trussell Trust for an Essentials Guarantee. This would adjust the Universal Credit standard allowance to a level that ensures people can afford their basic needs.”

“Despite the Chancellor’s previous Budget being touted as ‘a Budget for growth’, the economy is now smaller than it was last year. Immediate action is needed to enhance productivity and foster an investment-friendly environment to support living standards and public services.”