The chancellor’s two pence cut to national insurance contributions comes into effect from this weekend and could see the average individual save £447.86 over the year.
As announced at the Autumn Statement, this cut will see the main rate of primary Class 1 NI contributions fall from 12 per cent to 10 per cent.
NI contributions are mandatory for those age 16 or over who are either an employee earning more than £242 a week from one job or are self-employed and making a profit of over £12,570 a year.
These contributions enable workers to qualify for certain benefits, including the state pension.
Calculations by Quilter show the chancellor’s two pence reduction will save the average UK worker £8.61 per week.
Rachael Griffin, tax and financial planning expert at Quilter, said: “The chancellor’s 2p cut to NI was the big ‘rabbit out of the hat’ moment at the Autumn Statement, providing UK workers with some long-awaited respite via a boost to their monthly take home pay from this month.
“However, while a £447.86 yearly top up for the average worker will be welcomed, it will hardly be life changing.
“Getting more money into people’s pockets is key, and thawing the frozen income tax thresholds could help considerably.”
Griffin said with an election rapidly approaching, the Spring Budget will likely be the chancellor’s final opportunity to make any “vote swaying announcements” and income tax is widely rumoured as being top of the agenda “to curry favour with voters”– particularly younger cohorts.
Average savings for NI cut:
12% | 10% | Saving | |
£30,000 | £2,091.60 | £1,743.00 | £348.60 |
£34,963 (average salary*) | £2,687.16 | £2,239.30 | £447.86 |
£40,000 | £3,291.60 | £2,743.00 | £548.60 |
£50,000 | £4,491.60 | £3,743.00 | £748.60 |
£100,000 | £5,518.60 | £4,764.60 | £754.00 |
On the face of it, Griffin said this seems a relatively generous cut that will help put more money back in people’s pockets.
However, previous analysis from Quilter revealed that despite the NI cut, UK workers are just £2.68 a week better off than they would have been had tax thresholds not been frozen.
A worker on the average salary of £34,963 will take home an extra £8.61 a week due to the NI cut, but due to frozen tax bands and fiscal drag the real benefit is significantly smaller.
Had frozen income tax bands increased by just 2 per cent over the past four years, someone earning this same average salary would be a further £308.40 better off.
If you take this off the headline saving in NI, it leaves a saving of just £139.46 over the year or a meagre £2.68 a week, Quilter explained.
Griffin said: “Income tax thresholds are currently frozen until 2028 so a reduction alongside the cut to NI could bring some much-needed relief to UK workers who have borne the brunt of the cost-of-living strain.
“The government’s adoption of a stealthy fiscal drag approach has resulted in a huge number of UK workers being pushed into higher income tax bands as wages have risen rapidly in an attempt to keep up with inflation.”
Quilter said recent figures from the Office for Budget Responsibility show there will be an estimated 7.5mn higher rate taxpayers by 2028/29 if thresholds remain frozen, almost double the 3.8mn there were in 2019/20.
