A 1.25% hike in National Insurance (NI) will be reversed from November 6, Chancellor Kwasi Kwarteng has confirmed ahead of presenting a mini-budget on Friday.
The increase in NI - designed to pay for social care and dealing with the NHS backlog -was introduced by Rishi Sunak in April, but new Prime Minister Liz Truss said she would change it.
Kwarteng said he would also be scrapping the planned Health and Social Care Levy which was due to come into effect next April to replace the NI rise.
Kwarteng said: "Taxing our way to prosperity has never worked.
"To raise living standards for all, we need to be unapologetic about growing our economy. Cutting tax is crucial to this - and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
The levy was expected to raise around £13 billion a year to fund social care and deal with the NHS backlog which has built up due to the Covid pandemic.
However, Kwarteng said funding for health and social care services will be maintained at the same level as if it was still in place.
The Chancellor and Truss have argued that the lost revenues will be recovered through higher economic growth stimulated by the cuts in taxation.
But with Kwarteng also preparing to scrap a planned rise in corporation tax, some economists have warned about the sharp rise in Government borrowing.
The Institute for Fiscal Studies said the plan to drive growth was “a gamble at best” and that ministers risked putting the public finances on an “unsustainable path”.
The planned NI move has so far been criticised because those earning larger salaries will benefit a lot more from it than those on low incomes.
Somebody earning £20,000 will save about £93 a year, while somebody earning £100,000 will save £1093.
But Truss has denied cutting taxes is "unfair" because, she claims, it will help the economy to grow. She admitted earlier this week her plans would disproportionately benefit the rich.
The Treasury said most employees will receive a cut to their NI contribution directly via their employer’s payroll in their November pay, although some may be delayed to December or January.
Kwarteng is also expected to announce an end to the cap on bankers' bonuses.
