The 1.25% increase in National Insurance introduced in April will be reduced from 6 November, the chancellor has announced.
Before delivering his “mini-budget”, Kwasi Kwarteng said the change would save about 28 million people an average of £330 a year, noted the BBC.
A press release from the Treasury claimed that “repealing the increase will reduce tax on 920,000 businesses by around £10,000 per annum next year as they will no longer pay the employer’s higher rate of National Insurance and can now invest as they choose”.
National Insurance (NI) is a tax paid by employees, employers and the self-employed. The hike was introduced in April under former chancellor Rishi Sunak, but new PM Liz Truss promised to cancel it. Now Kwarteng has made good on this promise.
What does it mean to you?
Currently, salaried workers pay 13.25% on wages between £12,570 and £52,270 and 3.25% on all wages above this. Employers pay 15.05% of workers’ wages.
Self-employed workers pay £3.15 a week, if their earnings are above £6,725, and then 10.25% on earnings between £11,908 and £50,270 and 3.25% on earnings above this.
Kwarteng’s plan means that employees will pay 12% and 2% and employers will pay 13.8%. Meanwhile, Money Edit said, self-employed workers will pay a “bundled” rate to reflect the change over the year when they file their self-assessment returns in January.
The higher your income, the more you will benefit from this change, said the BBC. “For example, someone earning £20,000 would save around £93 a year, and someone earning £100,000 would save £1,093, compared to now,” it said.
Britain’s poorest households will get just 63p a month from reversing the rise in NI, according to a study from the Center for Fiscal Studies, while people earning more than £100,000 will benefit the most.
How did they react?
Reversing the increase in NI and other measures “would be equally beneficial to the rich and not provide answers to the costs of bad behavior”, wrote Miatta Fahnbulleh, executive director of the New Economics Foundation, in the Guardian. Combined with “a raft of tax cuts”, the measures “don’t help people who need it most and rob our fledgling public services of much-needed investment”, he said.
Reacting to the budget, Labor leader Rachel Reeves accused Kwarteng of not having a credible plan for growth, and said the series of measures announced in the so-called budget were based on “outdated thinking”.
He told MPs: “What we are adding to this plan is to keep company tax where it is today, and take the National Insurance contribution back to where it was in March. A new plan.
“It’s all based on the outdated idea that if we reward the already rich, the whole of society will benefit,” he continued, adding that the Conservative Party had “decided to replace promotion with promotion”.
Analysis from the Basic Decision they found that almost half of the benefits of the tax cuts announced today, which include scrapping the 45p rate of income tax and reversing the rise in NI, will “only go to the richest 5%, who will be £8,560 better off”. It found that “only 12% of the benefits will go to the poorest half of households, who will be £230 better off on average next year”.
However, some business leaders welcomed the change. Kitty Ussher, an economist at the Institute of Directors, a business body, told the BBC that increasing employers’ contributions to NI was a “mistake”.
“This was a job tax, which businesses have to pay even if they are profitable,” Ussher told the broadcaster. “Most of our members tell us that the impact of inflation is that they have no choice but to raise prices, which makes inflation worse.
“Some say rising recruitment costs mean they may think twice about taking on new staff, or make the difficult decision to let their colleagues go,” he added.