Home Estate Planning Spring Budget 2024: High earners set to pay more tax under band freeze, analysis shows

Spring Budget 2024: High earners set to pay more tax under band freeze, analysis shows

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Chancellor Jeremy Hunt announced on Wednesday that National Insurance will be cut by 2p to lower the tax burden ahead of a general election. However, analysis from investment platform AJ Bell has found that high earners are set to pay more overall under the government’s tax band freeze.

Hunt’s decision follows a reduction of the same amount in the Autumn Statement, meaning the basic rate for National Insurance will move down to eight per cent from April.

The move will mean savings of around £450 per year for the average earner and some £754 per year for those earning £50,270 or more. National Insurance is charged on a band of earnings between £12,570 and £50,270.

AJ Bell acknowledged that the changes to National Insurance were broadly a tax cut “in isolation”, but noted that the government has kept income tax bands frozen since March 2021 despite high inflation and wage growth. Hunt extended the freeze until 2028-29 last November.

It calculated that if the government had made the bands inflation-linked and kept National Insurance at 12 per cent, lower earners on £15,000 would save £390 per year.

Those earning between £75,000 and £100,000 will pay nearly £1,150 more from income tax thresholds not being uprated with inflation, AJ Bell found.

It added that middle earners on £35,000 and those on £50,000 would benefit from the government’s new system, with annual savings of £366 and £966 respectively. The former earners are due to save almost £900 on National Insurance 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,” said Laura Suter, director of personal finance at AJ Bell.

“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.”

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