How much money will you save with National Insurance cut?

Tax is set to be cut for millions of workers as National Insurance changes come into effect.

How much money will you save on National Insurance from January 6? iStock
Key Points
  • National Insurance will be slashed by 2%, from 12% to 10%, from Saturday
  • The average UK employee on a salary of £35,000 will save about £450 a year
  • Minimum wage to increase by 9.8% to £11.44 an hour
  • The UK Government will honour its commitment to the pension triple lock with an 8.5% rise
  • NI on income and profits above £50,270 a year will remain at 2%

Tax will be slashed for millions of workers across the UK from tomorrow as National Insurance changes come into effect.

Back in November, Jeremy Hunt confirmed in his Autumn Statement that National Insurance would be slashed by 2% from January 6.

The cut will see the average UK employee on a salary of £35,000 save about £450 a year.

STV News takes a look at what the National Insurance cuts mean for you.

What is National Insurance?

National Insurance is a tax paid on earnings by employees and employers, and by the self-employed on the profits they make.

It is the second biggest source of income for the UK Government.

Unlike Income Tax, which is partially devolved to the Scottish Parliament, National Insurance applies across the UK.

All employees aged from 16 up to retirement have fixed National Insurance contributions deducted from wages, provided you earn over a certain amount.

How much will I save on National Insurance?

All workers earning over the annual National Insurance threshold of £12,570 will see a fall in their National Insurance bill come January.

Employees currently pay 12% on earnings up to £50,271 and 2% on anything above that. From Saturday, the rate goes down to 10% respectively.

For the self-employed, rates will go down from 9% to 8%, meaning the slash will be worth £350 a year for the average self-employed person earning £28,200.

NI on income and profits above £50,270 a year (over £4,189 a month) will remain at 2%.

This means that those earning more will benefit from higher savings than those on lower wages.

The table below shows the current national insurance bill, along with previous bills since 2022.

What else is changing?

The chancellor confirmed his commitment to the UK’s pension triple lock with pensions set to rise by 8.5% from April 2024. That’s worth up to £900 a year.

Benefits will also rise by 6.7% – the inflation rate of September.

There will also be an increase in minimum wage – which is set to increase by 9.8% to £11.44 an hour.

Is there opposition to the changes?

Yes. Labour said that despite the cuts, the new Income Tax and National Insurance thresholds – which have been frozen since 2021 – will see many families drawn into higher tax bands.

Shadow chancellor Rachel Reeves said: “Under Rishi Sunak’s raw deal, for every extra £10 people are paying in tax they are only getting £2 back.”

Meanwhile the Liberal Democrats are calling for a cost of living rescue package for the “squeezed middle”.

The SNP criticised the mini-budget as being “too little too late for the squeezed majority of households”, with First Minister Humza Yousaf admitting the Scottish Government hadn’t received what it wanted from the Autumn Statement.

Why has a cut been introduced?

UK Government ministers say the plan will “reward work” while “helping the economy grow” by providing more funding for public services, including the NHS.

Chancellor Jeremy Hunt said the cut means families with two earners are nearly £1,000 better off.

He said: “I’ve been clear from the start that I want to cut taxes. Now, having met our pledge to halve inflation, taxes can be cut in a responsible way that rewards work and helps grow our economy.

“It’s the start of a process, as chancellor if I can afford to go further I will, I don’t yet know if I can.

“But we want to do this because it helps families, it also helps to grow the economy, and we believe that a lightly taxed economy will grow faster and in the end that’ll mean more money for public services like the NHS.”

Treasury minister Baroness Vere of Norbiton added: “Although this is a relatively small bill, it has a big impact. It is an integral part of the Government’s long-term plan to grow the economy and to reform the tax system.

“But most importantly, it is fair and it is right because it stands by working people.”

Why are millions more people paying Income Tax?

The tax-free personal allowance will remain at £12,570 and will be frozen until 2028.

According to the Office for Budget Responsibility (OBR) – which independently assesses the government’s economic plans – the freeze will create 3.2m extra taxpayers by 2028, and 2.6m more people will pay higher rates of tax.

The OBR says previously announced increases of £90bn mean that taxes will rise by the equivalent of £4,300 per household between 2019-20 and 2028-29.

It predicts that families’ household disposable income will be 3.5% lower come 2024-25.

The think tank said “the combination of higher inflation and frozen tax thresholds means that the tax burden is going up “to its highest level in the post-war era”.

Will there be further cuts?

Potentially. Following the Autumn Statement in November, the Government has faced pressure by Tory MPs to go further and cut Income Tax or Inheritance Tax.

According to The Telegraph, senior figures in No 10 are considering a handful of major tax cuts which could be announced in the Spring Budget on March 6.

This could be Hunt’s last chance to introduce major tax and spending changes before the next general election.

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