Rishi Sunak announced in his Spring Statement to the House of Commons on Wednesday that the threshold before which UK workers are required to pay National Insurance (NI) would be raised by £3,000 to assist with the cost of living crisis.
That means that people earning less than £12,570 in 2022/23 will not be required to make contributions to the scheme.
“That is a £6bn tax cut for 30 million people across the UK,” the chancellor said. “A tax cut for employees worth over £330 a year. The largest increase in a basic rate threshold ever – and the largest single personal tax cut in a decade.”
The cost of NI is nevertheless set to rise by 1.25 per cent for UK employees from 6 April as Mr Sunak seeks to fund spiralling NHS and healthcare costs in the wake of the coronavirus pandemic and tackle the country’s ongoing social care crisis.
Before Wednesday’s announcement, that increase had been due to hit everyone earning more than £9,568 a year, ratcheting up NI contributions from 12 per cent to 13.5 per cent for both employed and self-employed workers.
An individual earning £20,000 a year, for example, will see their NI contributions rise from £1,251.84 this year to £1,340.90 from 6 April 2022 to 5 April 2023.
Commenting on Mr Sunak raising the threshold, Maike Currie, an investment director at Fidelity International, said: “When it comes to tax there seems to be two chancellors living in Number 11 – the enthusiastic tax cutter on the one hand and prudent guardian of fiscal responsibility on the other.
“This change to the NI threshold addresses a long-standing anomaly of the tax system, whereby people pay NI on earnings over £9,568 a year but don’t start paying income tax until their earnings reach £12,570. While this ‘tidying up’ of a tax anomaly will be welcomed, it will only provide a meagre saving of around £330 a year for lower to middle earners.”
Even more critical was savings expert Kevin Mountford, co-founder of Raisin UK, who said: “It’s clear to see that for many households across the UK, this budget just simply won’t do enough. With the cost of living crisis worsening, and the [Office for National Statistics] ONS announcing today that inflation had risen to 6.2 per cent, many people would have been hoping for an even more enhanced support package.
“With the National Living Wage set to rise to £9.50 an hour, as previously announced in the Autumn Budget, the 1.25 per cent percentage point rise to NI will continue to cause concern for UK households as food prices, energy prices, and forecourt petrol prices continue to increase.
“With the threshold being raised by £3,000, it should protect people who are on the lowest incomes but will not protect all households where outgoings will continue to rise.”
