April’s National Insurance increase will be scrapped, the government has announced, which will mean almost 28m people will keep an extra £330 of their money on average next year.
The previous government raised National Insurance by 1.25 percentage points in April this year, to fund health and social care. This rate was due to revert to 2021-22 levels in April next year, at which point a new 1.25% ‘Health and Social Care Levy’ was due to come into effect.
The changes mean that the rise earlier this year has been reversed and the introduction of the levy in 2023 will be cancelled. Combined, these two measures should, according to the government, mean that nearly 30m people will be better off by an average of over £500 in 2023-24.
Kwasi Kwarteng, Chancellor of the Exchequer, said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the Levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
The Chancellor has promised that funding for health and social care services will be maintained at the same level as if the Levy was in place, therefore “protecting the NHS through the winter and ensuring long-term investment in social care.”
When will the rise be scrapped?
The NICs cut will be effective for most employees and employers on payments made on or after 6 November 2022.
According to accountancy firm Deloitte, a monthly paid employee earning £30,000 a year should see a drop in their monthly National Insurance Contributions of about £18 between October and November 2022.
Separate number-crunching by interactive investor found that someone earning this amount will save around £218 a year when the rise is scrapped, rising to £468 a year for someone on £50,000.
However, things are different if you’re self-employed. Rachel McEleney, associate tax director at Deloitte explained: “National insurance rates for the self-employed will be cut by 0.52 percentage points in the 2022/23 tax year rather than the full 1.25, resulting in temporary rates of 9.73% and 2.73% instead of the expected 10.25% and 3.25%. This is to reflect the fact that, unlike employees, the self-employed benefit from the cut for the full tax year rather than the final five months. A trader with profits of £60,000 will only pay £3,998 of Class 4 National Insurance in the 2022/23 tax year instead of the expected £4,248. The National Insurance rates for the self-employed will return to their previous levels of 9% and 2% from 6 April 2023.”
Little help for low earners
Although the reversal of the National Insurance hike is good news for those struggling to manage rising living costs, higher earners and employers will benefit most.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said: “The more you earn, the more National Insurance you pay, so the more benefit you’ll get from the cut. Someone earning £100,000 will save over £1,000 a year, while someone on £20,000 saves less than £100 and someone earning below the £12,570 threshold saves nothing at all.
“This won’t provide any extra help for those on the lowest incomes – earning under the threshold or receiving their income from benefits. Essential expenses like energy and food make up far more of their household budget, so the fact these prices have risen so alarmingly over the past 12 months has put millions of people under impossible pressure.
The Energy Price Guarantee has protected them from some of the most painful price hikes due in October, but those who were already struggling to make ends meet will have been hoping for a boost to their income or a cut in energy prices to protect them from a horrible winter. Neither the guarantee or the NI cut has achieved that.”