- Cutting the main rate of National Insurance from 12% to 10% will save someone on £30,000 around £350 a year
- Anyone earning more than £50,270 will save the maximum of £754 a year
- Cuts to employed and self-employed National Insurance comes with a price tag of £9.44 billion
Laura Suter, head of personal finance at AJ Bell, comments:
“Jeremy Hunt’s decision to cut National Insurance will save an employed working couple up to £1,500 a year from the new year as he looks to put the Tory motto of ‘make work pay’ into action. The decision to slash the main rate of National Insurance from 12% down to 10% is estimated to cut taxes for 27 million working people and will save someone on a £30,000 salary around £350 a year, while anyone earning more than the £50,270 threshold will save the maximum of £754 a year.
“Today’s cuts to both employed and self-employed National Insurance comes with a price tag of £9.44 billion for the government from April. That feels pretty meaty, but not when you put it next to £50 billion a year the government is expected to make from freezing income and National Insurance thresholds. It’s the classic case of giving with one and taking far, far more with the other. While the tax cut will be welcomed by workers around the country, they shouldn’t overlook the fact that they are still paying more in tax than if the government had never frozen thresholds.
“Once again the government has changed the rates of National Insurance partway through the tax year. It’s the fifth change to National Insurance rates or thresholds in less than two years – meaning it would be very easy for workers to lose track of what rate they are paying.
“National Insurance isn’t that well understood by the public, even though it’s essentially another form of tax on income. That means it’s often used to raise taxes – as the government can sneak the tax hike past some of the public. It makes it an odd choice for a crowd-pleasing tax cut to garner favour with voters. But there are two good reasons: one, it’s only paid by workers, not by pensioners, meaning it fits the government’s agenda of making work pay and boosting the finances of the working population. Two, it leaves the door open for a far more popular income tax cut next year, when we’re closer to an election and the government is reaching for a policy that has broad appeal and understanding.”
Self-employed National Insurance cut:
“The simplification of self-employed National Insurance helps to cut through some of the complexity of the tax system for those working for themselves. The National Insurance cuts are estimated to affect more than 2 million self-employed people, at a cost of £725 million to the government from next year.
“The decision to abolish the Class 2 band of National Insurance will save a worker £179.40 a year at current rates, or £192.40 if you base it on what rates would have increased to next year. The move to cut the rate of Class 4 contributions combined with abolishing Class 2 means a maximum £556.40 a year saving for a self-employed person earning more than the £50,270 threshold. For a self-employed person earning £40,000 a year their National Insurance bill will drop by £453.70 a year, while those earning £20,000 a year will save £253.70.”
