This year’s hike in National Insurance will be axed from 6 November, Kwasi Kwarteng has today announced.
The Treasury today said the move to reverse the 1.25 percentage point increase in National Insurance – which was originally brought in to pay for increased health and social care spending – will save businesses an average of £9,600 in 2023-24 and individuals an average of £300.
Prime Minister Liz Truss had promised to axe the tax during her successful bid to become Tory leader.
The announcement comes before the chancellor’s mini-budget tomorrow, where he is also expected to cancel a planned increase in Corporation Tax for the UK’s most profitable businesses and scrap stamp duty.
The tax cuts are expected to cost tens of billions of pounds and the Institute for Fiscal Studies (IFS) think tank has said tomorrow will be the largest tax cutting fiscal event since 1988.
Kwarteng today said “taxing our way to prosperity has never worked” and that “whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn”.
It comes after Truss has spent the week in New York talking up her radical tax-cutting agenda.
She told a group of Wall street executives yesterday in a roundtable meeting that her “plan is to simplify Britain’s taxes and to make us a better place to invest and be unashamedly pro-business”.
“And that’s every kind of business – whether it’s life sciences, whether it’s technology, whether it’s financial services,” she said.
Kwarteng’s Budget will likely land well with the Tory rank and file, but there have been concerns from the IFS that it will put the country’s finances on an “unsustainable path”.
The IFS, in a report with Citi, said that the expected policies will blow a £60bn-a-year hole in the UK’s budget.
It has also been suggested that some of the benefits of Truss’ tax cuts will be neutralised by the Bank of England’s tight monetary policy.
The Bank today moved to increase interest rates by 0.5 percentage points to 2.25 per cent.
However, business groups widely applauded Kwarteng’s announcement.
The Federation of Small Businesses chair Martin McTague said the National Insurance rise would have meant “50,000 fewer jobs in economy and add billions to the costs of doing business”.
“It was a spectacularly bad tax, contributing to the economic slowdown and worsening the cost of living crisis. Small businesses are glad to see the back of it,” he said.
Matthew Lesh, head of public policy at the free market Institute for Economic Affairs think tank, said today’s announcement was “a welcome step in the direction of lower taxes and boosting growth”.
“Tomorrow’s fiscal statement is a historic opportunity to set Britain on a more prosperous path,” he said