Unveiling his autumn statement on Wednesday, Jeremy Hunt claimed that it included the “biggest tax cut on work since the 1980s”. Here we examine what the chancellor’s measures mean for workers, homebuyers, pensioners and savers.
What does the NI cut mean for employees?
The chancellor is cutting the main rate of national insurance contributions (Nics) paid by employees from 12% to 10% with effect from 6 January 2024 – a move that will benefit 27 million workers.
The Treasury said the change meant an average worker earning £35,400 would enjoy a tax cut of more than £450 in 2024-25. It added that a typical full-time nurse on £38,900 would receive an annual gain of more than £520, while working families with two earners on the average income would enjoy a gain of £900.
Employees pay Nics on their wages as well as income tax, while employers also make contributions for staff. Nics raise huge sums for Treasury coffers and are used to cover the cost of certain benefits and the state pension.
However, commentators said the government was giving with one hand but, in many cases, taking back a lot more with the other, as a result of the previously announced freezing of personal income tax thresholds until 2028.
I’m self-employed. What has he done for me?
The chancellor also announced changes to the national insurance paid by those who work for themselves. From April 2024, self-employed workers will no longer have to pay class 2 Nics – these are now £3.45 a week and are paid by all registered self-employed workers earning a profit of £12,570 or more a year.
Those same workers also pay class 4 Nics, which in the current tax year are equal to 9% of their profits between £12,570 and £50,270, and 2% above that. In the next tax year, the main rate will be reduced to 8%. The chancellor said these changes would save a self-employed person with profits of £28,200 a total of £350 in 2024-25.
Class 2 Nics unlock access to certain benefits, including the state pension. When they are scrapped, self-employed workers will still qualify for those benefits. Those who earn less than £6,725 can make voluntary contributions so that they are entitled to those benefits, and this will continue. Those who make between £6,725 and £12,570 will get a credit, which is what happens currently.
Does this make up for the tax threshold freeze?
Not really. No changes were announced to income tax, so the freeze on personal tax thresholds until 2028 remains. Over time, this will drag more and more low-income households into paying basic-rate tax (which kicks in at £12,570), and those with earnings nearing £50,000 into the higher 40% rate (which kicks in at £50,270) – thus raising billions for the Treasury. This phenomenon, called “fiscal drag”, has been branded by many critics as a stealth tax.
Shaun Moore, a tax and financial planning expert at the wealth management firm Quilter, claimed the reality was that, despite the Nics cut, a worker on an average salary would be less than £3 a week better off next year than they would have been had the tax thresholds not been frozen.
He added: “If we assume the tax bands had increased by 2% over the last four years, someone earning £34,963 should be £308.40 better off. Therefore, if you take this off today’s headline saving in tax, it is actually only a saving of £139.46 over the year, or a rather measly £2.68 a week.”
According to the Office for Budget Responsibility, the 2p national insurance cut will offset only a quarter of personal tax-raising measures announced by the government since 2021, which includes freezing allowances and national insurance thresholds.
Laura Suter, head of personal finance at investment platform AJ Bell, said: “It’s the classic case of giving with one hand and taking far, far more with the other … [workers] are still paying more in tax than if the government had never frozen thresholds.”
Did Hunt cut inheritance tax?
Despite lots of speculation in the run-up to the statement, the chancellor made no changes to inheritance tax and it was not even mentioned in the accompanying documents.
Were there any property giveaways?
There were no measures to cut taxes for homebuyers or to boost home ownership, except for some plans designed to increase housebuilding in some parts of the country. There was some good news for renters who are claiming benefits to help with their housing costs: local housing allowance will be increased so that it is enough to cover the lowest 30% of rents. However, this won’t come into effect until April 2024.
What about savers?
Savers who pay into Isas will see changes in April 2024. Instead of being restricted to paying into a cash Isa and a stocks and shares Isa, you will be able to have several of either each tax year. So you could spread the £20,000 maximum investment across multiple cash Isas, or hold several in shares. You will also be able to transfer part of your investment to a new provider, rather than having to move the whole lot at once.
However, those hoping that there might be changes to the lifetime Isa to allow first-time buyers to use them for properties costing more than £450,000 were disappointed.
And pension savers?
The chancellor announced a consultation on a plan designed to give British workers one pension pot for life. This would deal with the problem of many people ending up with 10 or more different workplace pension pots, all containing different amounts, that can sometimes end up being forgotten and/or getting lost in the system.
It would mean an employee who moved to a new job would have the right to have their contributions paid into an existing pension scheme rather than their new company’s arrangement. Then, when they moved to another job, they would take this pot with them.
But many commentators said this was a highly ambitious idea that would take many years to bring to fruition, and could land employers with a huge administrative headache.
