Is Hunt’s National Insurance cut really a tax cut?

by | Mar 6, 2024

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Laura Suter, director of personal finance at AJ Bell, comments on Chancellor Jeremy Hunt’s announcement of a 2% cut to National Insurance for employed people in today’s Spring Budget.

She said: “Hunt has pulled the trigger on the less popular but cheaper way to cut taxes: by slashing National Insurance by 2 percentage points. The move marks the second cut to National Insurance for employed workers this year and combined the changes will save those earning £35,000 a year almost £900 on their annual National Insurance bill. 

“The starter rate for National Insurance for employed people, which is charged on the band of earnings between £12,570 and £50,270, has been cut from the current 10% to 8%. In isolation that move saves the average earner around £450 a year and saves those earning £50,270 or more a total of £754 a year. 

 
 

“But lower earners won’t be celebrating the move. Someone on £15,000 a year will save less than £50 a year on their National Insurance bill as a result of today’s reduction – and will save less than £100 a year if you combine today’s cut with the one made in the Autumn Statement. 

“The highest earners will be feeling short-changed too, as someone on £100,000 a year will save the same amount as someone earning half that salary. While some may struggle to muster up much sympathy for those earning six-figures, this move has a huge impact on single earner households. A couple each earning £50,000 a year will see their combined National Insurance bill cut by almost £1,500 a year but a sole earner on £100,000 will only save £754 a year.

“Those above state pension age and earning less than the National Insurance threshold of £12,570 will see no difference from today’s cut. The reason that a cut to National Insurance is cheaper than the same cut to income tax is because it benefits fewer people. Those over state pension age don’t pay National Insurance, whereas they do pay income tax. Having reportedly committed to the state pension triple-lock, Hunt has clearly decided he can afford to annoy a few pensioners by cutting them out of the tax savings today.” 

 
 
National Insurance Bill: how it’s changed
Salary2023Jan-Apr ’24April 24 onwardChange from 2023 to April 2024
£15,000£291.60£243.00£194.40£97.20
£25,000£1,491.60£1,243.00£994.40£497.20
£35,000£2,691.60£2,243.00£1,794.40£897.20
£50,000£4,491.60£3,743.00£2,994.40£1,497.20
£75,000£5,018.60£4,264.60£3,510.60£1,508.00
£85,000£5,218.60£4,464.60£3,710.60£1,508.00
£100,000£5,518.60£4,764.60£4,010.60£1,508.00
Source: AJ Bell. Figures show annual National Insurance bill. 

Have taxes actually been cut?

“The chancellor will be crowing about tax cuts for those who need it most, but the cut to National Insurance can’t be taken in isolation. The current government has presided over a system where income tax bands have been frozen at the same time as we’ve seen supercharged inflation pushing up both prices and wages. While most of the nation’s National Insurance bills will be lower after today’s cuts, for many their total tax bills will still be far higher than if the government had never introduced the income tax band freeze.

“To gauge the real scale of the cut you’d need to compare a system where income tax bands were never frozen, and instead kept pace with inflation since 2021, and National Insurance remained at 12%, with the system we will have from April. And there are winners and losers whichever way you spin it. 

 
 

“For middle earners the new system of frozen thresholds but National Insurance cut to 8% is more beneficial. Someone on £35,000 a year is saving around £370 a year as a result of those changes, while someone on £50,000 a year is saving almost £970 a year from April. 

“But the lowest earners would have been better off under a tax system where the income tax thresholds had increased with inflation. Someone on £15,000 a year would pay no income tax from April if the Personal Allowance had kept pace with inflation – as it would sit at £15,225 from April. That change would make them better off to the tune of almost £390 a year, even with the higher National Insurance bill. 

“Higher earners are also facing a far higher tax bill under the new system from April – paying almost £1,150 a year more. While they are saving on their National Insurance bill, they would have saved far more from income tax thresholds being uprated with inflation. Those earners would have benefitted from both a higher personal allowance and higher rate threshold, taking more of their income out of tax and meaning more of it was taxed at 20%. Had the higher rate threshold kept pace with inflation it would sit at £60,890 from April. 

 
 

“This mixed picture for different earners will be exactly the kind of figures Labour will pounce on to highlight how Hunt’s tax cuts aren’t actually tax cuts for much of the population. And they are the type of figures the chancellor will be keen to sweep over if he wants to boost the party’s popularity ahead of the general election.”

Total tax due in 2024/25
SalaryTax bill in 2024/25 after government’s 2024 Budget changesTax bill if income tax bands had been inflation-linked but National Insurance stayed at 12%Additional tax under new system
£15,000£680.40£291.60£388.80
£25,000£3,480.40£3,446.68£33.72
£35,000£6,280.40£6,646.68-£366.28
£50,000£10,480.40£11,446.68-£966.28
£75,000£20,942.60£19,796.43£1,146.17
£85,000£25,142.60£23,996.43£1,146.17
£100,000£31,442.60£30,296.43£1,146.17
Source: AJ Bell. Figures look at total income tax and National Insurance due in the 2024/25 tax year. The first scenario looks at total tax take from April following the government’s changes in the 2024 Budget, the second looks at if income tax bands had increased with inflation since 2021/22 but National Insurance remained at 12% and thresholds remained at current levels. Inflation uplifting based on CPI measure for previous September for all years up to 2024/25. After that it’s based on forecasts in the OBR report of forecast CPI inflation each year.

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