Some workers will win and others will lose as a result of changes to National Insurance contributions this year. Chancellor Rishi Sunak revealed today (March 23) that the threshold at which workers pay NI will rise to £12,570 in July.
That’s an increase of around £3,000 from the current starting point of £9,568, and means anyone earning less than the new amount will pay nothing. According to the Treasury, this will save a “typical” employee around £330 a year, and will benefit nearly 30 million workers.
But that comes after previous changes revealed last year, which will see contributions on earnings over the threshold increase by 1.25 percentage points in April, from 12% to 13.25%. At the time, ministers said the hike would be used to help shore up the finances of an overstretched NHS and social care sector.
Taken together, that means some workers will still pay more overall once both changes are taken into account. Currently, most employees pay NI of 12% on any income between £9,568 and £50,270, then 2% on anything above £50,270.
Adjusting for the changes to both the rates and threshold, a worker will now have 13.25% taken off earnings between £12,570, and 3.25% off anything over that.
Here’s a rough breakdown of what the changes mean:
Annual gross salary: // Change in annual NI contributions (2022-23)
£15,000 // -£240.76
£20,000 // -£178.26
£25,000 // -£115.76
£30,000 // -£53.26
£35,000 // £9.24
£40,000 // £71.74
£45,000 // £134.24
£50,000 // £196.74
£55,000 // £259.24
£60,000 // £321.74
Mr Sunak announced the NI changes as part of his Spring Statement – an update on the state of the UK’s economy. Alongside the changes to NI, he also revealed a planned reduction in the basic rate of income tax from 20p to 19p in the pound to come into effect in 2024.
However, this also comes alongside previously announced freezes on income tax thresholds, which amounts to a real-term cut as more people are pulled into paying the tax. The Institute for Fiscal Studies (IFS), which researches tax policy, said the combination of adjustments amounted to “giving with one hand in tax, having previously taken away with the other”.
Tom Waters, a senior research economist at the IFS, said: “When all is said and done, the reforms imply a greater level of tax for almost all workers – especially those on higher earnings. “In the nearer term, many households are likely to see real-terms declines in their incomes with both earnings and benefits failing to keep up with inflation.”
Unveiling his plans, Mr Sunak said they would “put billions back into the pockets of people across the UK”. He added: “Cutting taxes means people have immediate help with the rising cost of living, businesses have better conditions to invest and grow tomorrow, and people keep more of what they earn for years to come.”
