National Insurance cut 'does not go far enough'

National Insurance is set to be cut from 12 per cent to 10 per cent from January 2024.

The new measures were revealed in Hunt's Autumn Statement this afternoon (November 22) where he set out the government's tax and financial plans. 

The change was welcomed Dean Butler, managing director for retail direct at Standard Life said: “Reports that the headline rate of NI will be cut by 2 [percentage points] will no doubt be welcomed by workers who will hold on to more of their earnings as a result. It is workers who will benefit from this as those over state pension age do not pay NI.”

But Mohsin Rashid, CEO of Zipzero, said the proposals do not go far enough.

He said: "All the National Insurance cuts in the world will still fall short of rebuilding the pile of rubble that millions of Britons’ finances have been left in after years of fiscal chaos.

“Hunt's priorities are understandable – he has to paint a picture of long-term economic prosperity – but his focus was also misguided.

"It’s all very well for him to pat himself on the back for introducing policies that will put more money in people's pockets in the long-term, and may eventually contribute to restoring economic stability (providing of course that they don’t spike inflation). But where is the relief that is so sorely needed by those still struggling to put clothes on their backs and food on the table?

“The cost-of-living crisis is far from over – bolstering immediate, short-term support like energy bill relief and cost-of-living payments was crucial but did not materialise. Meanwhile, it is plain to see that these cuts predominantly benefit those whose pockets are already well-lined."

The cut was welcomed by Steven Cameron, pensions director at Aegon, but he said choosing not to cut income tax rates carries "significant implications" for individuals and the state pension system. 

He said: “While the NI cuts directly benefits employees and the self-employed, unlike a cut in income tax rates it won’t benefit those over state pension age (currently 66), who are exempt from NI contributions.

“But NI cuts have the benefit of applying automatically across all of the UK, ensuring equal benefits for all regions such as Scotland. This is in contrast to cutting income tax, which is subject to devolved powers, so for example, would not have applied in Scotland unless the Scottish government had followed suit.

"Although this reduction in contributions will be welcomed by many, it could further strain the sustainability of the state pension due to an aging population and the triple lock mechanism leading to substantial pension increases. Without additional funding from general taxation, the affordability of the state pension may become increasingly challenging."

Hunt told MPs the government's plan for the British economy "is working, but the work is not done" adding that the plan was to reduce debt and cut taxes.

He said the National Insurance cut will help 27 million people.

"It means someone on the average of £35,000 will save over £450. For the average nurse it is a saving of £520 for the typical police officer it is a saving of £630 every single year.

“I would normally bring in a measure like this from the new tax year in April but tomorrow I am introducing urgent registration to introduce it from January 6 so people can see the benefit in their payslip from the start of the year.”

Elsewhere in his speech, Hunt said he would extend National Insurance relief to employers of eligible veterans for another year.

He also said an extra £5bn would be made by giving HMRC extra resources to chase people for tax that they owe.  

It comes after a speech by Prime Minister Rishi Sunak on Monday after inflation had halved during the year, which was his target, the government could now look at tax cuts. 

According to the FT he said: “That’s why we can now move on to the next phase of our economic plan and turn our attention to cutting taxes.”

A day later the Treasure minister, Laura Trott, appeared to confirm that the cut was on the cards. 

Like Sunak, she said the economy is now in a different place and the focus can shift to tax cuts.

tara.o'connor@ft.com

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