The start of the new tax year has brought a financial boost to millions of UK workers. National insurance schemes have been in place since 6 April 2024, and British employees have begun to see a significant increase in their pay, thanks to the government's decision to reduce the primary rate of employee national insurance contributions from 10% to 8%.
The Impact of the National Insurance Cut
The cut in National Insurance promises to bring financial relief to all employees and self-employed people who earn more than £12,570 and are required to pay National Insurance contributions.
Separately, self-employed National Insurance main rate has also been reduced. Class 4 National Insurance main rate has been reduced to 6%, while the requirement to pay Class 2 has been removed.
The key purpose of this policy reform is to lower the primary rate of National Insurance contributions paid by employees and the self-employed.
Primary National Insurance contributions paid by employees and the self-employed have been reduced by 2 percentage points from 6 April 2024, and primary National Insurance contributions paid by employees and the self-employed have been reduced by the same percentage from the same date.
This policy reform builds upon adjustments announced in the Autumn 2023 Fiscal Statement where the primary rate of employee Class 1 National Insurance contributions would decrease by 2 percentage points from 12% to 10% starting January 6, 2024
The Office for Budget Responsibility (OBR) has analysed the macroeconomic impact of these changes on the labour market. According to their March 2024 Economic and Fiscal Outlook, the OBR estimates that by reducing National Insurance contributions, the hours worked by new and existing employees will increase. This equates to an additional inflow of 98,000 full-time workers.
| Impact | Estimated Increase |
|---|---|
| Hours worked | 98,000 full-time workers |
| Real household incomes | 0.5% |
| Potential output | 0.2% |
These changes to National Insurance contribution rates apply regardless of personal circumstances or protected characteristics such as gender, race or disability.
Impact on Individuals, Households and Families
Nationwide, individuals, households and families across the UK will benefit from the National Insurance reduction. Around 29 million people in the tax year 2024-2025 will benefit from a tax cut as a result of this measure. For example, an average employee earning £35,400 will benefit from a tax cut of more than £450 a year.
For the average self-employed person earning £28,000, the tax reduction will be £310 a year, benefiting over 2 million people. The actual impact on individual taxpayers may vary depending on their personal circumstances.
This measure should have no impact on family formation, stability or breakdown. As such, the customer experience should remain largely the same, as this measure does not significantly change the way most individuals interact with Her Majesty's Revenue and Customs (HMRC).