Posted: Sat 6th Jan 2024

National insurance cut takes effect from today, 27 million people set to benefit

News and Info from Deeside, Flintshire, North Wales
This article is old - Published: Saturday, Jan 6th, 2024

As of today, 27 million people across the UK will benefit from a yearly tax cut worth hundreds of pounds, meaning a household with two average earners will save nearly £1,000 per year.

The main rate of National Insurance Contributions (NICs) for employees will be cut by 2 percentage points, from 12% to 10%, leading to an annual tax saving of approximately £450 for an average full-time worker earning £35,000.

However, this cut comes amidst an ongoing freeze of personal tax thresholds, painting a complex picture of the overall tax impact.

Prime Minister Rishi Sunak commented on the tax cut, saying, “It is because of the tough decisions this government has taken that today we are able to cut taxes for 27 million people across the UK.”

However, the Institute for Fiscal Studies (IFS) has noted that personal taxes are rising despite these cuts.

The IFS points out that the combination of the NICs rate cut and the planned freeze in income tax and NICs thresholds in April ultimately results in an overall tax increase.

The IFS notes: “This year, 2024, will see both the NICs rate cut and a tax increase via the planned freeze in income tax and NICs thresholds and allowances in April. Put the two together and this is, overall, actually a tax increase.”

“But the effect will vary across people. An employee earning £35,000 will gain about £130 more from the NICs cut than they lose from this April’s freeze in thresholds.”

“Those with slightly higher earnings will gain a bit more than this, whereas taxpaying employees earning less than £29,000 will almost all lose out.”

“And we are in the midst of a much bigger tax rise as tax allowances and thresholds are set to be frozen all the way from 2021–22 through to 2027–28. That is a tax increase of over £40 billion by 2027–28 (the last year of the planned freezes).”

“By then, an employee earning £35,000 will be paying about £440 a year more in direct tax overall as a result of all the changes to income tax and NICs since 2021.”

Chancellor of the Exchequer Jeremy Hunt said:

“With inflation halved, we’ve turned a corner and are cutting taxes – starting with today’s record cut to National Insurance worth nearly £1,000 for a household.”

“From nurses and brickies, to cleaners and butchers, 27 million hard-working Brits will have a little more cash in their pockets.”

To mark the tax cut, HMRC have launched an online tool to help people understand how much they could save in National Insurance this year.

The tool will use salary information to give employees personalised estimates of how much they could save because of the government’s changes, and will be hosted on the government’s cost of living support website on GOV.UK.

 

 

 

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