A national insurance (NI) threshold hike will save millions of UK workers hundreds of pounds per year in what Boris Johnson labelled the “biggest tax cut in decades” to alleviate the cost-of-living crisis.
From Wednesday, workers will only pay NI on incomes above £12,750 – the same level as income tax – up from £9,880.
That means 2.2mln of the lowest-paid workers will no longer pay NI, with approximately 30mln expected to benefit.
The typical worker will save an extra £330 per year in a move expected to cost the government, but save workers, £6bn.
From earnings between the new threshold and £50,270, workers will pay 13.25% NI and 3.25% on any income above £50,270.
The move was announced on Nadhim Zahawi’s, the new Chancellor of Exchequer, first full day in office after Rishi Sunak’s shock resignation on Tuesday.
Sunak was heavily scrutinised in April following a 1.25 NI percentage point hike aimed at funding the health and social care levy, as well as paying for the losses during the pandemic.
How will this bolster the economy?
With an extra £330, on average, per year, people in the UK will be able to afford slightly more – easing extremely tight current budgets.
For example, many households have had to slash spending on food shopping as they battled against soaring fuel and energy prices.
Last month, Asda's chairman said many shoppers have been limiting themselves to spending £30 as they aim to reduce outgoings amid the cost-of-living crisis (read more).
If consumers are able to spend more at supermarkets, then in theory, food retailers’ profits should rise and they could use this to further bring down prices and help budgets stretch for longer, an analyst said.