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Chancellor Jeremy Hunt has announced a 2p cut to National Insurance in the Spring Budget, saving workers hundreds of pounds in tax each year.
However, few will feel better off because of the corrosive impact of the Government’s stealth tax raid.
Today’s announcement comes two months after the last NI cut came into effect.
Reducing NI was the Chancellor’s “rabbit out of the hat” moment in last year’s Autumn Statement.
It has now been confirmed he will reduce the main rate again, bringing it down to 8pc for employees, and 6pc for self-employed workers. Workers currently pay the main rate of NI on income between £12,570 to £50,270.
This giveaway will cost the Treasury £9bn, and save £349 a year for an employee earning £30,000 a year, while higher-rate taxpayers will save £754.
Yet the impact of the tax cut will be almost instantly wiped out because the thresholds for income tax remain frozen.
Despite today’s tax cut, the nation’s tax burden is still on track to hit its highest level since the Second World War.
Millions are paying higher rates of tax as a result of prime minister 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.
The result is that Britain will pay an extra £44.6bn because of the stealth tax raid, according to the Office for Budget Responsibility.
Here, Telegraph Money reveals how much the Tories’ stealth tax raid has cost you.
Income tax
Workers start paying 20pc income tax once they earn over £12,570 a year. The higher rate of 40pc then kicks in at £50,270.
Both of these thresholds have been frozen until 2028-29 under the current rules. As a result, almost four million more people will start paying income tax, while three million will be dragged into the higher rate.
The additional rate threshold – above which workers pay 45pc income tax – was lowered to £125,140 in April 2023. An estimated 400,000 taxpayers will be hit with the additional rate by 2028-29.
Meanwhile, thousands more families are expected to pay tax on their loved one’s estate because of the freeze to inheritance tax allowances.
Inheritance tax
Inheritance tax is expected to raise £7.6bn for the Treasury in 2023-24 – up 7.5pc year-on-year.
Individuals with less than £325,000 in assets upon their death do not have to pay inheritance tax. This allowance is called the nil-rate band.
Homeowners leaving their property to their children get an additional £175,000 allowance called the residence nil-rate band. This means a married couple can pass on up to £1m tax-free.
However, had it been uprated with inflation, the nil-rate band would be worth nearly £500,000 today, while the residence nil-rate band would be worth over £200,000.
Raising these thresholds would allow families to pass on thousands of pounds more to their children and grandchildren.
Savings tax
An estimated 2.75 million people in the UK are set to pay tax on their cash savings interest in 2023-24, according to stockbroker AJ Bell.
This is because the personal savings allowance has been frozen since 2016. Basic rate taxpayers can earn up to £1,000 in interest before they must pay tax at their marginal rate. This drops to £500 for higher rate taxpayers, while additional rate taxpayers get no allowance.
As a result anyone with cash outside of a tax-free wrapper such as an Isa is at risk of being caught in the tax trap.