The change will come into effect from 6 January 2024.
The chancellor is to cut the rate of national insurance (NI) by two percentage points for employees. The change will take effect from January 2024.
Employees will pay 10% in NI contributions on earnings between £12,570 and £50,200, rather than the current rate of 12%. The rate remains at 2% for earnings above £50,200.
Chancellor Jeremy Hunt said this will benefit 27 million people, meaning a person earning £35,400 will save about £450 a year.
According to Treasury documents released alongside the Autumn Statement, the cut will cost the government £8.7bn in 2024/25, rising to £9.3bn in 2028/29.
‘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, we need to recognise that their hard work benefits us all,’ Hunt said. ‘So today I am going to cut the main rate of employee national insurance.’
For an employee paying the basic rate of tax, this will mean they will have a combined NI and income tax rate of 30% on earnings above the personal allowance of £12,570.
The bigger-than-expected cut was announced alongside a cut of one percentage point for self-employed workers, with the Class 4 NI rate reduced to 8% from next April.
Additionally, the flat Class 2 rate of £3.45 a week for the self-employed will be abolished next April.
NI thresholds remain the same, meaning they have not risen with inflation, despite the headline cuts to NI contribution rates.
The chancellor is to cut the rate of national insurance (NI) by two percentage points for employees. The change will take effect from January 2024.
Employees will pay 10% in NI contributions on earnings between £12,570 and £50,200, rather than the current rate of 12%. The rate remains at 2% for earnings above £50,200.
Chancellor Jeremy Hunt said this will benefit 27 million people, meaning someone earning £35,400 will save about £450 a year.
According to Treasury documents released alongside the Autumn Statement, the cut will cost the government £8.7bn in 2024/25, rising to £9.3bn by 2028/29.
‘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, we need to recognise that their hard work benefits us all,’ Hunt said. ‘So today I am going to cut the main rate of employee national insurance.’
For an employee paying the basic rate of tax, this will mean they will have a combined NI and income tax rate of 30% on earnings above the personal allowance of 12,570.
The bigger-than-expected cut was announced alongside a cut of one percentage point for self-employed workers, with the Class 4 NI rate reduced to 8% from next April.
The flat Class 2 rate of £3.45 a week for the self-employed will also be abolished.
I thresholds remained the same, meaning they have not risen with inflation, despite the headline cuts to NI contribution rates.
Alasdair Walker, managing director at Handford Aitkenhead & Walker, said that the cuts are too ‘narrowly defined’ as they only affect earned income.
‘It’s a clever way of doing an income tax cut,’ he said. ‘It’s not affecting all the people with property income, dividends income, and so on. For as long as the tax thresholds are kept static, in a world of higher inflation, we’ve had a real terms tax increase on each of those.’
Zachariah Sharif (City Wire)