Rishi Sunak has increased the income threshold for National Insurance in a £330 annual tax cut for employees, while also delivering a gloomy updated forecast for the UK economy.
Sunak said in his spring statement that the threshold at which employees pay National Insurance will be lifted by £3,000 to £12,570 in what he called a “£6bn personal tax cut for 30 million people across the United Kingdom”, while also promising to cut the basic rate of income tax from 20 per cent to 19 per cent in April 2024.
It will come after an already announced 1.25 percentage point increase in National Insurance for employees and employers from next month, with Labour shadow chancellor Rachel Reeves saying today’s announcement “begs the question – why did he embark on these changes in the first place?”
The Office for Budget Responsibility (OBR) also delivered downgraded economic growth forecasts on the back of UK sanctions on Russia, with Brits now facing the largest fall in living standards since the 1950s.
Motorists will get help with the cost of living squeeze with a 5p cut to fuel duty, while the chancellor also announced a series of Research and Development (R&D) tax credits to try and boost private sector investment.
The chancellor claimed his tax plan “delivers the biggest net cut to personal taxes in over a quarter of a century”.
Speaking about the National Insurance changes, Sunak said: “The Institute for Fiscal Studies has called it ‘the best way to help low and middle earners through the tax system.
“It is a tax cut that rewards work. And, Mr Speaker, around 70 per cent of all workers will have their taxes cut by more than the amount they’ll pay through the new Levy. Once again it is this Conservative government delivering for hardworking families and helping with the cost of living.”
He added: “Last year, I told the House I would cut taxes for hardworking families, but I would do so in a responsible and sustainable way and today, I am delivering on that promise. So let me say this – cutting taxes is not easy, it requires hard work, prioritisation and the willingness to make difficult and often unpopular arguments elsewhere.
“It is only because this government has been prepared to make those difficult but necessary choices to fix our public finances that I can stand here and tell this House that not only are taxes being cut.”
The OBR now expects GDP growth to hit 3.8 per cent this year, after previously forecasting six per cent in autumn last year.
Inflation is now expected by the budgetary watchdog to hit 7.2 per cent this year – three per cent more than predicted in October.
Responding to the statement, Reeves said: “Despite the chancellor’s reluctant measures, the facts are that he is taking money out of people’s purses and wallets with an increase in national insurance contributions.
“The changes he is making today, beg the question – why did he embark on these changes in the first place?
“Despite the warnings from the Labour party and many, many others. Now it’s one thing for the Prime Minister and chancellor to disagree with each other, but the centre piece of the statement that the chancellor has delivered today is based on a disagreement with himself.”
Tony Danker, director-general at the CBI, said the chancellor’s statement was “welcome”, but that it doesn’t “do enough to tackle the current challenges facing firms”.
“In reality, we cannot wait until October to get growth going. The government needs to get moving straight away,” he said.
“We need concrete plans now on how we get new nuclear, hydrogen and onshore wind investment.”
Will Tanner, director of centre-right think tank Onward, said: “The 5p cut to fuel duty and the rising threshold for National Insurance contributions offer considerable protection against spiralling inflation, especially for those on the lowest incomes – and, from 2024, he ensured that voters will keep an extra penny from every pound they earn.
“But while voters recognise that the Chancellor is fighting fires on all fronts, he cannot lose sight of why the Government was elected back in 2019 – to level up opportunity across the UK. Today’s statement had positive language on capital investment, R&D and apprenticeships, but scant detail and no decisions until the autumn.”