- Hunt delivers tax cuts by reducing national insurance rates for a second time
- But income tax rates and thresholds untouched
National insurance rates will be cut again for both the self-employed and employees, chancellor Jeremy Hunt said in today’s Spring Budget.
The latest cut will reduce the Class 1 national insurance rate by 2 percentage points, from 10 per cent to 8 per cent from April. Class 1 is paid by employees with annual earnings between £12,570 and £50,270 and translates into a £754 a year saving for employees who earn £50,270 and above.
Hunt announced an initial 2 percentage point national insurance cut in last November’s Autumn Statement. The Class 1 rate was reduced from 12 per cent to 10 per cent, with the measure coming into effect from January. Employees on a salary of £50,270 and above will save a total of £1,508 a year from the two combined cuts.
In the Autumn Statement, Hunt also reduced national insurance for the self-employed from 9 per cent to 8 per cent. This was due to come into effect in April. The tax will now be cut by a further 2 percentage points also from April. The government said the combined cut to self-employed national insurance will save the average self-employed person on £28,000 around £650 a year.
There had been hopes ahead of the Budget that Hunt might reduce the basic income tax rate, but this did not materialise. The personal allowance and income tax thresholds have been frozen since the 2021-22 tax year and are due to remain so until 2027-28, resulting in an annual tax increase in real terms.
According to analysis from the Institute for Fiscal Studies think tank, a 2p national insurance cut will not be enough to prevent taxes rising to a record share of gross domestic product (GDP) by 2028-29. Despite delivering a minimal bounce in the polls after the Autumn Statement, national insurance cuts have the advantage of being both less inflationary and cheaper than income tax cuts. The latter benefit both workers and pensioners, and carry a greater cost of around £7bn for each 1p cut, against £5bn for national insurance.
Laura Suter, director of personal finance at AJ Bell, said that opting for national insurance cuts over income tax “offers a double-whammy as it is both cheaper and is targeted at workers”. “The move will also help to quell some of the claims of generational unfairness as those on the state pension are likely to be handed another meaty increase through the triple-lock,” she added.
