Autumn Statement 23: National Insurance cuts to benefit 27 million people

Speaking in the House of Commons, Hunt said after tax income has risen by 25% but the Conservatives have “delivered the biggest business tax cut since the 1980s”.

The new measure will be implemented from 6 January “so people can see the benefits in their payslips from the start of the New Year”. He said the changes mean someone on an average salary of £35,000 will save more than £450 a year.

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“There are high employment taxes on 27 million people, which is dis-incentivising the hard work we should be prioritising,” Hunt told MPs.

“Lower tax means higher growth,” Hunt said. He said “difficult decisions” were made to put the UK’s economy back on track, which the government has succeeded in doing as the “economy has grown”.

“The Office for Budget Responsibility say these measures will reduce inflation next year,” he added. “Today’s measures remove barriers for investment.”

Hunt’s 110 measures were announced in the Autumn Statement this afternoon, in which he addressed the nation on his plans to “turbo charge” growth in the economy.

“Real incomes have risen rather than the predicted fall. It was predicted that the economy’s growth would drop 1.4%, instead it has grown and is expected to rise by 0.6% this year,” Hunt said.

Hunt and Prime Minister Rishi Sunak both said recently that personal tax cuts were likely, with the economy “turning a corner”.

Newly-appointed deputy at the Treasury Laura Trott said on Tuesday (21 November) that the chancellor is expected to cut tax for individuals as well as businesses.

Quilter tax and financial planning expert Shaun Moore criticised the NI cut.

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“Hunt has given workers a miniscule nibble of carrot with his 2p cut to NI contributions after they have been battered by stick recently,” Moore said.

“The reality is workers are just £2.68 a week better off due to today’s tax ‘giveaway’ than they would have been had tax thresholds not been frozen.

“More money in people’s pockets thanks to tax cuts is no doubt a good thing but this move gives someone on the average salary of £32,963 an extra £8.60 a week due to the NI cut. But the reality is you only are getting a benefit of around 50% of this due to the frozen tax bands and fiscal drag. If we assume the tax bands had increased by 2% over the last four years, someone earning £34,963 should be a further £308.40 better off. Therefore, if you take this off today’s headline saving in tax it is actually only a saving of £139.46 over the year or a rather measly £2.68 a week.”

M&G Wealth head of technical Les Cameron said: “The reduction in NI for both the self-employed and employed will be a welcome relief for many. Those who do not need the boost to their income might consider increasing their pension contributions or other savings to benefit them in the future. Importantly, it should not affect their state pension entitlement.”

“The NI cut will be welcomed by all employees earning over £12,570 per annum. It could have a knock-on effect for salary sacrifice arrangements, though, as any NI savings made by the employer will be lower and pension contributions will decrease.”

Wesleyan Financial Services director Linda Wallace said: “The cut in NI will be welcomed by many and help ease financial pressures at a time when the cost of living remains such a challenge. Those that were hoping for changes to the income tax rates, particularly doctors and others who find themselves falling into higher and additional rate tax bands, will be disappointed with today’s news.”

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Aegon pensions director Steven Cameron said: “While the NI cuts directly benefit employees and the self-employed, unlike a cut in income tax rates it will not benefit those over state pension age (currently 66), who are exempt from NI contributions.

“But NI cuts have the benefit of applying automatically across all of the UK, ensuring equal benefits for all regions, such as Scotland. This is in contrast to cutting income tax, which is subject to devolved powers, so for example, would not have applied in Scotland unless the Scottish Government had followed suit.

“Furthermore, NI contributions provide funding for essential benefits, including the state pension. Although this reduction in contributions will be welcomed by many, it could further strain the sustainability of the state pension due to an ageing population and the triple lock mechanism leading to substantial pension increases. Without additional funding from general taxation, the affordability of the state pension may become increasingly challenging.

“Finally, a cut in income tax rates would have led to lower pensions tax relief, whereas cutting NI rates does not reduce the generosity of pensions tax relief.”

Aon principal consultant Jeff Fox added: “While the reduction in NI is welcome, it does have a less welcome pincer movement on Salary Sacrifice – an approach used by many UK firms. The increase in the national minimum wage and significant NI reduction will simultaneously make it harder for organisations to offer salary sacrifice to many people, while also reducing the savings achieved for those still able to participate.

“At particular risk are employers with lower paid staff where flexible benefits and other salary sacrifice schemes are available. This is a big deal. 

“Organisations are urgently advised to review their benefit schemes to ensure they remain compliant, with the employee communications for upcoming renewals being a key priority.”