Rishi Sunak today announced he would raise the National Insurance threshold by £3,000 as he was forced to soften the blow of his tax hike on working Brits.
After months of pressure, the Tory Chancellor used his Spring Statement to match the earnings threshold with the one at which workers start having to pay Income Tax.
It means workers will now start paying National Insurance on earnings above £12,570 a year - up from a planned £9,880 a year from April 6.
It will take some of the lowest earners out of paying the tax, and save those still paying £330 a year.
But for millions of Brits the saving looks set to be cancelled out by a £12bn rise in National Insurance that is coming on April 6 - despite furious pleas to scrap it.
Employees will pay 1.25p more in the pound on earnings above the threshold, a rise from 12% to 13.25%. That rise will hit working people as the Treasury looks to cut Covid backlogs in the NHS and begin funding social care.
It will cut into the £330 saving for anyone earning between £12,570 and around £36,000, and outstrip it entirely for anyone earning over £37,000 a year.
Separately, Mr Sunak revealed he will cut the basic rate of income tax from 20 pence in the pound to 19 in April 2024.
The Chancellor told MPs he would publish a “tax plan”, adding: “Our current plan is to increase the NICs threshold this year by £300, I’m not going to do that – I’m going to increase it by the full £3,000, delivering our promise to fully equalise the NICs and income tax thresholds.
“And not incrementally over many years, but in one go, this year. From this July, people will be able to earn £12,570 a year without paying a single penny of income tax or National Insurance.
“That is a £6bn tax cut for 30 million people across the UK. 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.”
But the Treasury has confirmed the Chancellor's big National Insurance threshold rise only applies to employees and the self-employed - meaning employers paying National Insurance contributions will not be get the extra relief.
Thresholds for firms will go up by the normal rate - putting huge pressure on hard-up firms amid soaring inflation.
Officials insisted firms will be helped by the separate changes to the Employment Allowance, which will be raised for small firms from £4,000 to £5,000.
The IFS think tank had estimated the National Insurance tax hike would cost £20,000 earners £127 extra per year, £30,000 earners £252 a year and £50,00 earners £502 a year.
Today's announcement will also do nothing to help those who are out of work due to sickness or redundancy - who will get a benefits rise worth less than half of inflation.
Experts had warned a benefits rise would help the poorest by four times more than scrapping the National Insurance hike. But NI has been the focus of Tories who worry the tax burden is too high.
Brits on benefits will get a rise of just 3.1% on April 11 - worth only £10.07 a month extra on Universal Credit. That is months after an £85-a-month cut to Universal Credit.
Those supportive of Boris Johnson argue the new National Insurance levy is "progressive" as the wealthier pay more. The IFS said £80,000 earners would pay an extra £877 under previous calculations.
But Tory backbenchers hostile to new taxes baulk at the plans as the tax burden hits its highest in decades.
