Spring Budget 2024: The government is to cut employee national insurance contributions (NICs) by two pence, falling from 10% to 8% from 6 April.
In his Spring Budget, Jeremy Hunt, Chancellor of the Exchequer, said that this will save the average worker on a salary of £35,400 around £900 a year, once combined with the 2p cut announced in the Autumn Statement 2023. This means that a person on the average wage now has the lowest effective personal tax rate since 1975.
According to Spring Budget documents, the Office for Budget Responsibility (OBR) has forecast that the latest reduction means the total hours worked will increase by the equivalent of almost 100,000 full-time workers by 2028-29. When combined with the cuts announced in the Autumn Statement 2023, the OBR expects that total hours worked will increase by the equivalent of around 200,000 full-time workers by 2028-29.
Seb Maley, chief executive officer of Qdos, said: “On the face of it, doubling down on NIC cuts is good news for employees and sole traders. But as always, the devil is in the detail. With income tax thresholds frozen, more people are being dragged into higher rates of tax. The reality is, fiscal drag threatens to cancel out the Chancellor’s NIC cut.
“The broad-stroke tax cuts announced are nowhere near targeted enough for millions of people working through their own limited companies. Yet again, they have been largely left out in the cold and most won’t feel the benefit of the NIC cut. For all the talk about long-term growth, the government has overlooked those key to achieving this.”
Toby Tallon, tax partner at Evelyn Partners, added: “A further NIC reduction is evidently cheaper than a similar cut to income tax, and as it prioritises earned income over unearned income, it can be billed as a growth strategy that encourages work. Taken together with the January cut from 12% to 10%, this amounts to a total tax cut of an annual £618 for a median earner and £1,508 for higher earners, or £51.50 a month and £125.60 respectively.
“That would be a reasonably significant tax cut in isolation, but it is swimming against a rising tide of taxation due to frozen or falling allowances and thresholds, not just for income tax but also capital gains, dividend and inheritance taxes. The drop in NICs will provide temporary respite against that rising tax burden but will just push down the road by a year or two the point, at which the overall tax situation for most people starts to feel more onerous again.”