Millions of workers will get a bigger-than-expected cut in the amount of National Insurance they have to pay, in a move announced in the Autumn Statement on the UK’s finances today.
And it will kick in earlier than usual – at the start of next year – with January often the month when incomes are under the most pressure after Christmas. Changes to tax measures usually run from early April, when the financial year starts.
Chancellor Jeremy Hunt took the shears to one of the broadest taxes in the country, levied on every employee and self-employed person earning more than £123 a week. He cut it to 10%, or by 2 percentage points, for people earning between £12,570 and £50,270.
“For the average nurse, it’s saving of £520, for the typical police officer a saving of £630 every single year,” Hunt said.
Someone earning the average UK salary of £35,000 will save £450 a year from the change.
Hamilton Forrest, tax expert and partner at City law firm Fladgate, said: “The reduction in National Insurance Contributions will be welcomed by earners across the country. It is as good as a cut in income tax, but it raises the question: Why do we still have two taxes on earnings?”
He added: “Proposals to merge the two were first mooted in 1947 and more recently by George Osborne in 2012 – but nothing has happened. Simplification of the tax system remains further away than ever.”
Hunt said the cut would help “27 million people” and argued that “high employee taxes … disincentive the hard work we should be encouraging,” adding:
“If we want people to get up in the morning, if we want them to work nights, if we want an economy where people go the extra mile and work hard, then we need to recognise that their hard work benefits us all.”
Some City experts reacted warily to drop in income the cuts will cause at the Treasuty, not least at a time when public debt levels remain high.
Yael Selfin, Chief Economist at KPMG UK, called Hunt’s wider tax-cutting plans ““virtuous but impractical”, adding:
“While the package of net giveaways worth £17 billion takes advantage of the recent windfall in the public finances, the prospect of higher interest rates, demographic pressures, and a slowing economy leaves the Exchequer vulnerable to a sudden reversal of fortune.”
