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Manchester Evening News
Manchester Evening News
National
Fionnula Hainey

How much your pay could rise as major National Insurance change comes into force today

A major change to National Insurance (NI) payments comes into force today which will boost the pay packets of workers across the UK. From Wednesday, July 6, the threshold at which people make NI contributions will increase.

Starting thresholds for National Insurance payments will rise from £9,880 to £12,570 from today. The move follows a controversial 1.25 percentage point increase in NI in April, to help pay for health and social care, which came amid a string of other bill hikes, including a jump in the energy price cap.

Today's change means that people will be allowed to earn a higher salary before they start paying NI contributions. It is hoped the move will ease the cost of living crisis for those struggling with bills, but critics have warned that the change will not make a huge difference to monthly take-home pay.

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According to the government, nearly 30 million working people are set to benefit from the change, but higher earners will still end up paying more overall due to the health and social care levy introduced earlier this year. The government claims that a typical employee will save over £330 in the year from July under the new threshold, and 2.2 million people will be taken out of paying NI altogether.

The new threshold means that workers will pay 13.25 per cent NI on earnings between £12,570 and £50,270 a year. According to the government, this tax cut will save most people earning more than £12,750 an average of around £330 a year, but the figure varies depending on how much you earn.

For example, someone earning £17,100 a year would save £318 in NI, as their bill would drop from £917.52 currently to £599.40 under the new threshold. A taxpayer earning £18,000 would save an extra £310 a year, and someone earning £20,000 a year would be £291 a year better off.

The government previously said that seven in 10 workers who pay National Insurance contributions will pay less after accounting for the health and social care levy. However, Alice Haine, personal finance analyst at investment platform Bestinvest, said a £330 saving “won’t stretch far when you realise that only equates to £27.50 a month”.

She continued: “Yes, every penny counts in this cost-of-living crisis and for some, that £27.50 could be the difference between having dinner every night and sometimes going without. For others, however, that amount will barely make a dent in their budgets as they struggle to pay the household bills amid rampant inflation as soaring food, fuel and energy prices become the norm.”

Analysis by AJ Bell suggests that in the current tax year, people earning around £31,500 or less will be better off under the new system, to varying degrees, although the lowest earners may not have met the threshold for paying NI in any case.

NI, which is used to fund state benefits, is paid by anyone aged 16 or over who earns above £190 a week, or is self-employed and making a profit of £6,725 or more a year. Once you reach State Pension age, you no longer need to keep paying NI.

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