Home Estate Planning Spring Budget 2024: Hunt cuts National Insurance by 2p – What does it mean for you?

Spring Budget 2024: Hunt cuts National Insurance by 2p – What does it mean for you?

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The Chancellor has cut National Insurance by 2p in the Spring Budget in an attempt to boost his party’s standing in the polls and lower the tax burden.

The move follows a reduction of the same amount in the Autumn Statement, meaning the basic rate will move down to eight per cent starting from April.

Cutting National Insurance only benefits those in work, meaning there is a greater incentive to enter the workforce. This also means it is a cheaper option than lowering income tax, which impacts pensioners too.

“The cut in National Insurance doesn’t grab the headlines in the same way that a cut in income tax – which is better understood – would,” Myron Jobson, senior personal finance analyst at interactive investor, said.

“But the tax savings are still significant – amounting to £349 a year for someone earning £30,000, rising to £749 for someone earning £50,000 and £754 for higher-rate taxpayers,” he continued.

Basic rate

Salary £      20,000 £      30,000 £      40,000 £      50,000Current NI (10%) £           743 £        1,743 £        2,743 £        3,743After NI reduction to 8% £           594 £        1,394 £        2,194 £        2,994Tax saving £           149 £           349 £           549 £           749Source: interactive investor

Salary £      60,000 £      70,000 £      80,000 £      100,000Current NI (10%) £           3,964 £        4,164 £        4,364 £        4,764After NI reduction to 8% £           3,210 £        3,410 £        3,610 £        4,010Tax saving £           754 £           754 £           754 £           754Source: interactive investor

Taken together with January’s tax cut, the median earner will take home an additional £618 annually while higher earners will get £1,508.

However, despite the reduction, the Institute for Fiscal Studies pointed out the tax burden is still on course to rise to record levels, largely due to fiscal drag.

Source: IFS

Fiscal drag occurs when tax thresholds remain static but pay increases in line with inflation or more – dragging people into higher tax brackets even when their relative wealth may not increase.

In Autumn 2022, Hunt froze tax thresholds until 2028, which the OBR estimates will see millions of additional households having to pay more tax than if the thresholds were raised in line with inflation.

Research from the Resolution Foundation shows the net impact of the total 4p cut in National Insurance when frozen thresholds are also taken into consideration.

While workers earning between £27,000 and £59,000 see a net benefit, higher earners are actually still £500 worse off. Those earning less than £27,000 are the worst hit by frozen thresholds, with someone earning £16,000 taking the biggest hit as a proportion of their income.

Source: Resolution Foundation

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