Jeremy Hunt cuts national insurance, but you will still pay more tax
Chancellor Jeremy Hunt waited until the very end of his Autumn Statement to deliver the tax cuts that his backbenchers would have been angling for.
Having announced a range of measures to boost business, Hunt announced that the main rate of National Insurance (NI) would be cut by two percentage points rather than the one percentage point cut that had previously been rumoured.
Employees pay 12 per cent Class 1 NI on earnings over £12,570, and two per cent on earnings over £50,270. When the tax cut comes into effect from early January, employees will pay 10 per cent and two per cent respectively
According to the Chancellor, the change would help 27m people and mean someone on the average salary of £35,000 would save over £450 per year.
Hunt also announced he was cutting the main rate of self-employed NI (the Class 4 rate) from nine per cent to eight per cent – worth £350 for the average self-employed person on £28,200. Meanwhile, the flat-rate of Class 2 NI will be abolished.
The employee tax savings for different income brackets following the cuts to national insurance are:
| Income level | Tax saving |
| £30,000 | £354 |
| £50,000 | £749 |
| £100,000 | £754 |
| £150,000 | £754 |
But is the tax cut all its cracked up to be?
In reality, Hunt is paying for the reduction by freezing tax thresholds. Freezing tax thresholds when inflation is rising drags more people into higher tax brackets.
Thresholds for both national insurance and income tax have been frozen since 2021, which the OBR forecasts will generate £44.6bn by 2028-29.
In other words Hunt’s tax cuts come amid an ever increasing tax burden. As Torsten Bell, director of the Resolution Foundation, noted, “taxes are up not down.”
“Personal tax cuts worth around £10bn just announced – less than a quarter of the personal tax rises already in train from threshold freezes. Taxes overall are hugely up levels at the 2019 election.”
Yael Selfin, Chief Economist at KPMG UK made the same point. “A 2p cut won’t be enough to offset the impact of threshold freezes which are already in place,” she said.
Cutting national insurance is also a fairly regressive policy. Employees will receive 2p back on every pound they earn above the threshold, which means those earning more will receive more back.
“Despite all the fanfare, household budgets will continue to be squeezed by tight monetary and fiscal policies, with the tax burden set to reach 38 per cent of national income by 2028-29,” Selfin said.
Evelyn Partners’ head of tax Sian Steel said: “The freeze policy on tax thresholds that has been in place since 2021 – as well as the cut to the additional rate threshold to £125,140 in April 2023 – will be earning £29.3 billion a year for the Treasury by 2027-28. That is equivalent to a 4p increase in the basic rate of income tax.”