Chancellor Jeremy Hunt confirmed the Treasury will cut the main rate of national insurance by a further 2 percentage points to 8%, claiming this will save the average worker around £450 per year.
Employee national insurance contributions were already cut in October’s Autumn Statement, when they were reduced from 12% to 10% on earnings between £12,570 and £50,268.
Introducing today’s spring Budget, under increased scrutiny as this is likely to be an election year, Hunt said the Conservative party’s policies would mean “more jobs, more investment and lower taxes”, and would “unleash people power”.
He said that “the way we tax people’s income is particularly unfair”, adding that the combination of income tax and national insurance meant workers were taxed twice.
“This penalises work rather than encourages it. If we want to encourage people to come back into work… we need a simpler system that makes work pay,” he added.
In combination with the Autumn Statement’s cut to national insurance, bringing it down by a further two percentage points will bring in a further 200,000 people to the workforce – more than a fifth of the 900,000 vacancies currently unfilled.
He said this was the “lowest effective personal tax rate since 1975”. Hunt added that the government’s long-term ambition was to “end unfairness when this is responsible”, appearing to hint that the dual tax regime could one day be scrapped.
According to the Office for Budget Responsibility, the economy will grow by 0.8% this year, and 1.9% in 2025 – half a percentage point higher than forecast in the Autumn Statement. Hunt also suggested that inflation could reach its 2% target in the next financial quarter of this year.
The government will invest in a new “public sector productivity plan”, aimed at digitally transforming public services and reducing the amount of time and money spent on inefficient tasks. This includes £3.4bn in a new NHS IT system that it claims will unlock £35 billion in savings.
“Public services do not always need more money or more people, we need to run them more efficiently,” said Hunt, adding that the systems that support NHS staff are “often antiquated”.
Working parents will also free up some income thanks to the Spring Budget, with the Treasury planning to pay full child benefit to households where the highest-earning parent earns up to £60,000 (currently £50,000). Only when one parent earns £80,000 (currently £60,000) will the household become ineligible for child benefit.
And after extending ‘free’ childcare hours to parents of younger children in last year’s Spring budget, Hunt confirmed the government will “guarantee the rates that will be paid to childcare providers”, but did not say how much.
Opposition leader Sir Keir Starmer challenged the government’s assertions that it was a party that supported working people, accusing them of “smiling as the ship goes down”. He said the Conservative party would “give with one hand and take away with the other”, adding that voters “recognise a Tory con” when they see it.
Genevieve Morris, head of corporate tax at accounting firm Blick Rothenburg, said: “Hunt is focused on getting people back into employment and helping businesses fill the vacancies they have.
“What he seems to miss is the huge cost to businesses of employing staff – employers’ national insurance contributions, apprenticeship levy, pension auto-enrolment, national minimum wage.
“Where is the employers’ NIC cut that may actually motivate more businesses to employ more people, fuelling growth and helping more people into employment?”
Ben Harrison, director of the Work Foundation at Lancaster University, added that millions were still stuck in “jobs characterised by low pay and without key employment”.
“The chancellor’s decision to prioritise the short-term sugar rush of a further 2p cut to national insurance over further public service investment is ill-advised.
“The reality is cutting NICs is likely to disproportionately benefit those on higher incomes and will do little to address the financial penalty of £3,276 per year experienced by those in insecure jobs.”
“It will also do little to address the UK’s long-term sickness crisis. Since December 2019, on average nearly 500 people have become economically inactive due to ill health every day – leaving us with a near record 2.8 million people out of the labour market as a result.”
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