23 November 2023
‘Jeremy Hunt has bet the house on cuts to National Insurance contributions (NICs) being welcomed by workers and shifting his party’s political fortunes in the polls. But will workers really be better off?
‘Whilst the chancellor has cut NIC rates for employees and the self-employed, he has opted to leave the tax and NIC thresholds frozen. Ordinarily, the income tax personal allowance and the basic rate limit would have increased from April 2024. This increase would typically have been in line with the 6.7% percentage increase in the consumer price index in September 2023 from the year before.
‘This means that the income tax personal allowance would have been £13,420, rather than £12,570. Similarly, the higher rate threshold would have increased to £53,720, rather than the current amount of £50,270.’
‘As a result, more individuals will be dragged into the tax net and higher tax rates when they otherwise wouldn’t have. The Office of Budget Responsibility (OBR) estimates there will be an additional four million workers paying tax in the 2028/29 tax year due to these fiscal drag measures. In addition, they estimate three million more workers will pay higher-rate tax at 40%.
‘It’s clear that many would have been better off if the chancellor simply unfroze these tax thresholds and allowances. For some, this could be described as the tax cut that actually isn’t one.’