Chancellor Rishi Sunak has announced a national insurance threshold rise and cut to income tax in his spring statement.
From July, the salary at which employees will pay national insurance contributions (NICs) will increase from £9,880 to £12,570, which Sunak described as the “largest single personal tax cut in decades” and a “tax cut that rewards work”. This brings it into line with the personal tax allowance.
He said 70% of people who pay NICs will have their tax cut by more than the amount they’ll pay through the new Health and Social Care Levy. Employers’ and employees’ national insurance contributions will both rise by 1.25% next month, which will be used to fund health and social care, but from April 2023 the levy will appear as a separate line on employees’ payslips.
The spring statement 2022 document published by HM Treasury said the change will take 2.2 million people out of paying Class 1 and Class 4 NICs and the Health and Social Care Levy altogether, “making the taxation of income fairer”.
Before the end of this Parliament in 2024, the basic rate of income tax will be cut from 20p to 19p in the pound, “for the first time in 16 years”, Sunak said.
“A tax cut for workers, for pensioners, for savers. A £5bn tax cut for over 30 million people,” he said.
National insurance threshold rises
“The knowledge that you can keep more of what you earn is a powerful incentive to work hard.”
The income tax change will be implemented in a future Finance Bill.
Sunak acknowledged that the introduction of the Health and Social Care Levy had been unpopular at a time when the cost of living has accelerated, that it was right the levy stayed in order to fund the NHS.
“If it goes, so does the funding, and that funding is needed now… so it is right that the levy stays,” he said.
The chancellor also announced that:
- the employment allowance will increase further from April 2022, meaning eligible employers will be able to reduce their employer NICs bills by up to £5,000 per year. This will allow businesses to be able to employ four full-time employees on the national living wage without paying employer NICs
- the government will review the apprenticeship levy to assess whether it is “doing enough” to encourage investment in training
- tax rates on business investment will be cut in the Autumn Budget.
The TUC said the national insurance threshold rise would mostly benefit “better off” households, and noted the package of measures “failed families who need help now”.
General secretary Frances O’Grady said: “The spring statement small print shows that pay packets are now expected to fall in value by £11 a week this year. After 12 years of Tory government, Britain needs a pay rise. But this chancellor has no plan to get wages rising and give working people long-term financial security.”
Raising the threshold for employees is sensible and will help to soften the blow, but 60% of national insurance is paid by businesses – this tax rise will place an extra heavy burden on them.” – Neil Carberry, REC
Neil Carberry, chief executive of the Recruitment & Employment Confederation (REC), said: “Now is not the time to be raising national insurance, the UK’s biggest business tax. Raising the threshold for employees is sensible and will help to soften the blow, but 60% of national insurance is paid by businesses – this tax rise will place an extra heavy burden on them, especially in labour-intensive sectors like hospitality which are already struggling.
“The chancellor’s cuts to fuel duty and business rates for retail, hospitality and leisure businesses are welcome. And his plan for incentivising business investment, including looking at the failed apprenticeship levy, sounds promising. But employers have been promised change before – this time, he has to deliver.”
Ben Willmott, head of public policy at the CIPD, said the apprenticeship levy review is “long overdue but presents a real opportunity to rethink how to boost employer investment in skills”.
“However, more needs to be done to encourage and enable employers across the economy to invest more in the technology, management capability and workforce development to boost firm-level performance and real wages, especially amongst the lowest paid,” he said.
“In particular, there’s a pressing need to improve local business support services for smaller businesses, as well as further thinking on how employers can meaningfully engage with the further education system and on other key areas of skills policy.”
Bukola Odofin, HR recruitment expert at Reed, said businesses could consider other ways of attracting staff if raising salaries was not an option.
“We could easily be reaching a time where offering competitive salaries is the only way to attract the best talent, pushing the perks brought forward by the pandemic, such as remote working, back. Alternatively, with rising fuel prices, if offering a better salary isn’t possible, remote working is a nice way to subside costs for the employees you don’t want to lose during this testing financial time,” said Odofin.