MILLIONS of workers are set to receive a £450 rise in the Spring Budget as the Chancellor prepares to slash National Insurance (NI).
On Wednesday, Jeremy Hunt will present a financial plan for the rest of the year, including changes such as tax rises, cuts and benefits increases.
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Jeremy Hunt is set to reveal a 2p cut to National Insurance
As part of the announcement, the Chancellor will reveal a 2p cut to NI which will come into effect in April.
The change will help 27 million workers and mean someone earning an average salary of £35,000 will save more than £450 a year.
Together with the two percentage point cut in the main NI rate announced in the Autumn Statement, this will be a total saving of £900 a year.
The reduction from 12 percent to 10 percent took effect in January.
This further reduction will save a worker on £25,000 a year £248.60.
For someone on an annual salary of £50,000, the saving will be £748.60 a year.
NI is a tax on your earnings and goes towards state benefits including the state pension, statutory sick pay, maternity leave and unemployment benefits.
Speaking at the weekend, Jeremy Hunt said he hoped to use the Budget to “show the way” in the direction of tax cuts, but stressed that any tax cuts would have to be “prudent”.
The chancellor has been under pressure to continue with significant handouts in the budget in a bid to encourage Britain to grow.
In recent weeks, the Prime Minister and Chancellor Jeremy Hunt have tried to play down the importance of more gifts, with only around £13 billion available to wiggle room.
Spring Budget 2024: How income tax and national insurance work
The gift could have come in the form of income tax cuts, but the chancellor chose to cut NI instead.
This means pensioners will miss out on any savings as NI is not paid by those over the state pension age, which is currently 66.
Victoria Price, director of Alvarez and Marsal Tax, said: “We estimate that a 2% cut will cost around £9bn, in contrast income tax also affects pensioners and passive income such as investment income and would be a more expensive gift to around £13 billion.”
But financial experts and economists have already warned that the frozen tax brackets, which pushed people into higher tax brackets, will offset the increase in National Insurance for many people.
Changes to universal credit and beer duty are also expected to be announced in tomorrow’s budget.
Of course, we won’t know exactly what’s coming in the spring budget until the day itself.
What is the budget?
The budget is big news and you’ll often hear tax announcements. But what exactly is it?
The budget is when the government sets out its plans for the economy, including taxation and spending.
The Chancellor of the Exchequer gives a speech in the House of Commons announcing plans for things like tax rises, cuts and changes to universal credit and the minimum wage.
At the same time, the Office for Budget Responsibility (OBR) publishes an independent analysis of the UK economy.
Normally, the budget is a once-a-year event and is usually held in the autumn, with a smaller update known as the spring statement.
But there have been exceptions in recent years when there have been multiple updates or announcements happened at different times, for example during a pandemic or when there is a general election.
On Budget Day, usually a Wednesday, the Chancellor is photographed outside No. Downing Street. 11 with a red box.
He then heads to the House of Commons to deliver his speech, at around 12.30pm after Prime Minister’s Questions (PMQs).
Changes announced in the budget are sometimes implemented on the same day, while others may not have a specific date.
For example, a change in tobacco duty usually happens on the same day, which increases the price of cigarettes.
Some tax changes should take effect at the start of the new tax year, which is April 6.
Other changes may need to go through parliament before they take effect.
What is National Insurance?
National Insurance is a tax on your earnings, which is put into a fund to be used for some government benefits.
This includes the state pension, statutory sick pay, maternity leave and unemployment benefits.
If you are a UK citizen, you should get an NI number and card automatically before you turn 16.
This number allows the government to track your earnings and apply the right amount of tax.
Who pays for National Insurance?
You pay national insurance if you are 16 or older and if:
- An employee who earns more than £242 per week
- Self-employed and making profits in excess of £12,570 per annum
It is deducted from your salary every month.
If you are employed, you can see your contributions on your payslip.
Once you reach State Pension age, you don’t 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, how much you earn and whether you have gaps in your National Insurance record.
What are the NIC thresholds and how much do I pay?
The threshold for NI payments is currently £12,570 per year for employed workers.
If you are employed, you start paying NI when you are 16 or over.
Most people now pay 10% NIC on any earnings between £242 and £967 a week.
In addition, you have to pay 2% on anything you earn over £967 a week – or £4,189 a month.
Those earning less than these amounts do not have to pay National Insurance.
The self-employed start paying when they make a profit of at least £12,570 a year.
If you are self-employed, you must complete a self-assessment tax return and pay NIC and income tax yourself.
The exact amount you will pay will depend on how much you earn as it is a percentage of your earnings between these amounts.
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Source: HIS Education