A cut to National Insurance comes into effect from Monday and could save many people hundreds of pounds.
The move was one of Liz Truss and Kwasi Kwarteng’s economic policies that was maintained after the regime change.
New Prime Minister Rishi Sunak and Chancellor Jeremy Hunt are taking a very different approach to the economy and taxes than their predecessors.
Mr Hunt has already handed over most of the mini-budget and will set out his plans for the UK’s economic future in next month’s autumn statement.
Here’s how much National Insurance you pay under the current rules and whether this could change.
How much national insurance do I pay?
One of Mrs Truss’ key policies during the initial leadership contest was to roll back a 1.25 percentage point rise in national insurance contributions that came into force in April to further fund the NHS and social care budget.
This was confirmed during the mini-budget and is one of the few policies that have been supported by Mr. Hunt.
Abolishing the national insurance increase will give workers above the national insurance threshold of £12,570 a slice of their pay packet – saving £155 a year for someone on £25,000, £343 for a worker on £40,000 and £1,093 for anyone on a £100,000 salary.
Proportionally, the plan benefits those with higher incomes more than those with lower incomes.
Here you can find a national insurance calculator to work out what you are paying now.
How much income tax do I pay?
This is the tax you pay on your income, although you don’t have to pay tax on all types of income and some income is tax-free.
The amount you pay each tax year depends on:
- how much of your income is above your personal allowance
- how much of your income falls within each tax bracket
The standard personal allowance is £12,570. This is the amount of income on which you do not have to pay tax.
Your Personal Allowance may be higher if you claim Marriage Allowance or Blind Allowance. It is less if your income is more than £100,000.
Currently, the tax rates you pay in each bracket if you have a standard personal allowance of £12,570 are:
- Basic rate of tax, which applies to all income from £12,571 to £50,270 – 20 per cent
- Top rate of tax, which applies to all income from £50,271 to £150,000 – 40 per cent
- Additional rate of tax, which applies to all income above £150,000 – 45 per cent
Ms Truss planned to cut the basic rate of tax to 19 per cent from April 2023, but that plan has been scrapped.
She also planned to scrap the 45 percent tax bracket entirely, with 40 percent becoming the top rate, but was quickly forced to backtrack after a huge backlash.
What does Rishi Sunak mean about the economy?
The Prime Minister has warned that “difficult decisions” will have to be made, causing fears of a return to austerity measures. This means spending cuts and less investment in services, while taxes are very unlikely to be cut.
Mr Hunt will deliver an Autumn Statement on Thursday 17 November, having postponed it from Monday 31 October.
The statement will include the Office for Budget Responsibility’s (OBR) economic forecast, as well as plans to put public spending on a sustainable footing, reduce debt and restore stability.
The Treasury said: “The Government is prepared to act decisively and at scale to regain the trust and confidence of the country.
“The chancellor stated in his speech that there will be more difficult decisions to make on both taxes and spending. This means doing what is needed to reduce debt in the medium term and ensure that taxpayers’ money is well spent, putting the public finances on a sustainable footing.”
Confirming the delay in publishing the statement, Mr. Hunt said on Wednesday: “I want to confirm that it will show the debt coming down over the medium term, which is really important for people to understand.
“But it is also extremely important that this statement is based on the most accurate possible economic forecasts and public finance forecasts.
“And for that reason, the Prime Minister and I have decided that it is prudent to make that statement on November 17, when it will be upgraded to a full autumn statement.”
He added: “The OBR also want to make sure their forecasts are as accurate as possible and there has been a lot of change in the last 48 hours as well.
“And that’s my recommendation to the Prime Minister as the best way to ensure that the decisions we make, these very, very difficult decisions, are the ones that stand the test of time and give us the best opportunity to give people their safety. mortgages, on their jobs, on the cost of living concerns that everyone has.
“I’ve shown in the short time I’ve been chancellor that I’m willing to make decisions very quickly and I’m willing to make choices that are politically awkward if they’re the right thing to do for the country. if they are in the national interest.
“Now we have a new prime minister and the prospect of much longer-term stability for the economy and the country.
“In this context, a short delay of two and a half weeks is the best way to ensure that it is the right decisions that we make.”
Sunak’s decision to keep Mr. Hunt as chancellor gives further indications that his government is committed to tackling the deficit.
Eliminating the deficit over the next five years could require more than £30bn of fiscal tightening.
This could mean spending cuts of up to two per cent, similar to the levels of austerity seen under the coalition government in 2010.