A £450 boost for 27 million workers as Jeremy Hunt plans to make national insurance cuts
MILLIONS of workers will get a £450 boost in the Spring Budget as The Chancellor prepares to scrap National Insurance (NI).
Jeremy Hunt will outline the financial plan for the rest of the year on Wednesday, including changes such as tax rises, spending cuts and benefit increases.
As part of the announcement, The Chancellor will announce a 2p discount on NI that will come into effect in April.
This change will help 27 million workers and means that someone earning an average salary of £35,000 will save over £450 a year.
Combined with the two percentage point reduction in the main interest rate announced in the Autumn Statement, this will result in a total saving of £900 per year.
The reduction from 12% to 10% came into effect in January.
This further reduction will save a worker earning £25,000 a year £248.60.
For someone with an annual salary of €50,000, the savings are €748.60 per year.
NI is a tax on your income and goes towards state benefits including the state pension, statutory sick pay, maternity leave and unemployment benefits.
Jeremy Hunt said this weekend that he hopes to use the Budget to “show a path” towards tax cuts, but stressed that any tax cut must be “prudent”.
The Chancellor is under pressure to continue with significant budget giveaways in a bid to keep Britain growing.
In recent weeks the Prime Minister and Chancellor Jeremy Hunt have tried to play down more giveaways, with only around £13bn of headroom available.
The giveaway could have come in the form of an income tax cut, but the Chancellor has decided to cut NI instead.
This means that pensioners are missing out on their savings because no one over the state pension age is paying NI.
Victoria Price, managing director at Alvarez and Marsal Tax, said: “We estimate it will cost around £9 billion for a 2% cut. Income tax, on the other hand, also affects pensioners and passive income, such as investment income, and would amount to around £13 billion.”
But financial experts and economists have previously warned that frozen tax thresholds, which have pushed people into higher tax brackets, will offset national insurance increases for many people.
Changes to Universal Credit and beer duty are also expected to be announced in tomorrow’s Budget.
What is the budget?
The Budget is big news and you will often hear announcements about taxes. But what exactly is it?
In the budget, the government outlines its plans for the economy, including taxes and expenditure.
The Chancellor of the Exchequer gives a speech in the House of Commons, announcing plans for things such as tax increases, cuts and changes to Universal Credit and the minimum wage.
At the same time, the Office for Budget Responsibility (OBR) is publishing an independent analysis of the UK economy.
Typically, the Budget is a once-a-year event that usually takes place in the autumn, with a smaller update known as the Spring Declaration.
But there have been exceptions in recent years where there have been more updates, or the announcements have taken place at different times, for example during the pandemic or when there is a general election.
On Budget day, usually a Wednesday, the Chancellor is photographed outside 11 Downing Street with the red box.
He will then go to the House of Commons to give his speech at around 12.30pm, after Prime Minister’s Questions.
Changes announced in the budget are sometimes implemented the same day, while others have no fixed date.
For example, a change in tobacco tax usually occurs on the same day, causing the price of cigarettes to increase.
There will be some tax changes at the start of a new tax year, which is April 6.
Other changes may need to go through parliament before becoming law.
Of course, we won’t know until the day itself what exactly will be in the Spring Budget.
What is National Insurance?
National insurance is a tax on your income, which is paid into a fund and used for certain state benefits.
This includes the state pension, statutory sick pay, maternity leave and unemployment benefits.
If you are a British national, you should automatically receive an NI number and card before you turn 16.
This number allows the government to keep track of your income and apply the correct amount of tax.
Who pays for the National Insurance?
You pay National Insurance if you are 16 years or older and:
- an employee earning more than £242 per week
- self-employed and makes a profit of over £12,570 per year
It is deducted from your salary every month.
If you are employed, you can see your contributions on your pay slip.
Once you reach state pension age, you no longer have to pay it at all.
There are different types of National Insurance – known as “classes” – and the type you pay depends on your employment status and how much you earn, and whether there are any gaps in your National Insurance file.
What are the NIC thresholds and how much do I pay?
The threshold for NI payments is currently £12,570 per year for salaried workers.
If you are employed, you pay NI from the age of 16 or older.
Most people now pay 10% NICs on all earnings between £242 and £967 per week.
In addition, you must pay 2% on anything you earn over £967 per week, or £4,189 per month.
Those who earn less than these amounts do not have to pay national insurance.
Self-employed people start paying when they make a profit of at least £12,570 per year.
If you are self-employed, you will need to complete a tax return and pay your own NICs and income tax.
The exact amount you pay depends on how much you earn, as it is a percentage of income between these amounts.
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