Last 6 January, the 2p Class 1 National Insurance (NI) tax cut took effect, benefiting 27 million taxpayers in the UK, as announced in the previous year’s Autumn Statement. Prime Minister Rishi Sunak claims that this NI tax cut from 12p to 10p will mean an almost £1,000 savings for the 2024/25 tax year in a household with two average earners.
As the prime minister said, “Today’s tax cuts will directly reward hard working people, putting £450 back in the pocket of the average worker and helping them make ends meet.”
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The new measure is fully supported by the Conservatives but questioned by the Labour Party and several economists, scrutinising where the almost £1,000 savings calculation comes from. Oppositions consider it a “raw deal” as the UK government assumes if a household has two average earners, that will mean £70,800 combined. With both taxed 2p less, the savings will amount to £913.20 in total (£456.60 each); hence, the “nearly £1,000” savings claim.
However, in a more realistic perspective, a typical family with two average earners may not earn £70,800 in a year. This is to factor in 30 per cent of people in the UK working part-time, which usually earn around £12,500 each before tax deductions. That is hundreds of pounds lower than the estimated typical two-earner household income.
The claimed tax savings amount also did not consider other tax rules, to recall that the tax-free thresholds for both NI and income tax have been frozen since, which means more taxpayers are continuously pulled into the higher tax rate brackets. Many families are still going to deal with high tax responsibilities.
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If the frozen thresholds were considered, the tax savings would have been around £130 annually instead of £456.60 for every taxpayer, which means everyone is just claiming what they may have lost in the previous year.
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Reference:
£1,000 yearly tax cut for households from today. 6 January 2024. Retrieved from Gov.UK: https://www.gov.uk/government/news/1000-yearly-tax-cut-for-households-from-today
National Insurance: Is Jeremy Hunt right about £1,000 saving? 9 January 2024. Retrieved from BBC: https://www.bbc.com/news/uk-politics-67912689
National Insurance reduction: How much money will we really save? 6 January 2024. Retrieved from ITV: https://www.itv.com/news/2024-01-06/national-insurance-reduction-how-much-money-will-we-really-save
