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The average employee earning £35,000 will save £785 a year thanks to National Insurance being cut by a further 2 percentage points in the spring Budget.
“Class 1” National Insurance was charged at a rate of 12pc in April 2023, but following successive cuts will now be 8pc from April. It has already fallen to 10pc from January.
The main rate of self-employed “Class 4” NICs was set to reduce from 9pc to 8pc in April. The rate will now fall again, to 6pc.
Jeremy Hunt has decided to cut NI after deciding a cut to income tax would be too expensive. Government sources said the average worker would save £450 as a result of the latest cut to NI. Use our calculator, below, to see how much you’ll save both from this cut, and the previous one that took effect in January this year.
Legislation is expected to be brought forward to ensure the latest reduction. Overall the Budget giveaway is expected to cost the treasury around £9bn. NI receipts are used to fund benefits, including the state pension.
However, tax experts pointed out that, taken together with the deep freeze on income tax and other thresholds, many people are still worse off.
Toby Tallon, a tax partner at wealth manager Evelyn Partners, said: “That would be a reasonably significant tax cut in isolation, but it does come against a background of rising taxation due to frozen or falling allowances and thresholds, not just for income tax but also capital gains, dividend and inheritance taxes.
“According to independent analysis, this Budget won’t prevent the overall tax burden rising to its highest levels since the second world war by 2028.”
For someone earning £35,000 the £785 saving from NI cuts is reduced by over half thanks to frozen tax bands.
Annually the frozen rates add £418 to the bill from 2021, this results in an increased tax burden of £2,574 by 2028.
Millions are paying higher rates of tax because of Rishi Sunak’s decision to freeze thresholds in March 2021. Tax bands are normally increased with inflation in order to stop workers from drifting into higher income tax brackets as their wages rise.
The freeze was initially expected to raise £8bn and last until 2026. But Mr Hunt then extended the freeze until 2028-29 and widened it to include NI contribution thresholds, despite taxpayers facing increased financial pressure thanks to consumer price inflation that peaked at 9.6pc in 2022.
Workers pay NI until they reach state pension age. After this, you no longer have to make payments, even if you still have a job.
Racking up enough contributions (NICs) over your working life can be the difference between getting an extra £10,000 a year in government payments when you reach retirement.
For the self-employed, the abolition of Class 2 NI and the reduction of the Class 4 rate, announced in the Autumn Statement, will save someone making profits of £35,000 a total of £394 compared to April 2023.
The tax cut scheduled to take effect in April affects around 2 million self-employed workers.
This article is kept up-to-date with the latest information.