April 6 represented an important turning point for 29 million British citizens, as a record reduction in National Insurance Tax Cut came into effect. This transformational event is the result of the colossal one-third reduction in National Insurance Contributions (NICs) introduced last autumn, the largest reduction in the history of NICs.
The Strategy Behind the Tax Cut
For the most part, these changes are intended to dismantle the unfair double taxation of income through NICs for employees and the self-employed. Since January, substantial benefits have already resulted from this strategy, with the rate of primary tax for National Insurance for 27 million employees reduced from 12% to 8%. As a result, the average employee earning £35,400 can expect annual savings of over £900.
In addition, over 2 million self-employed people will benefit from the reduction in the NIC Class 4 primary rate from 9% to 6% and the eradication of NIC Class 2 payments. Streamlining the tax system means annual savings of more than £650 for the average self-employed person earning £28,000.
The capacity to implement these tax cuts is a testament to the resilience of the UK economy, which is rebounding steadily thanks to strong government action to bring inflation down from an alarming 11.1% to a manageable 3.4%.
Such economic success has enabled the UK government to cut taxes to reward hard work and stimulate economic expansion. Costing an estimated £20 billion a year, the tax cuts will mean that average earners will pay less personal tax than in any other G7 country.
Prime Minister Rishi Sunak and Chancellor of the Exchequer Jeremy Hunt have spoken enthusiastically about the tax cuts. Mr Sunak praised "hard work, which is one of my core values" and highlighted the £900 tax cut for the average earner as a significant step towards abolishing long-term national insurance.
Mr Hunt, meanwhile, cited the tax cuts as proof that the government's economic plan was working and putting hundreds of pounds a year back into the pockets of working people across the country.
Beneficiaries of the Tax Cut
Families earning less than £60,000 will particularly benefit from the tax reduction, as they will no longer have to pay the additional tax. In addition, the rate of tax for those earning up to £80,000 will be cut, saving 485,000 families with children more than £1,260 a year.
Timed to coincide with a series of measures implemented on 1 April, the tax reforms are expected to save households up to £3,850 on average per year.
Among the measures are a remarkable increase in the National Living Wage from £10.42 to £11.44 per hour, a 12.3% reduction in energy bills compared to previous months, and an increase in housing benefit for some less well-off families by an average of £800 per year.
The government will also maintain the triple lock on pensions, increasing the full basic state pension by 8.5% to almost £170 a week, following unprecedented increases last year. Pension reforms have increased pensioners' incomes by an average of £1,000 since 2010.
Who is eligible for the tax reduction?
The combined cuts to National Insurance mean:
- A hard-working family with two earners on the average salary of £35,400 each will be better off by £1,826.
- An average full-time nurse on £38,900 will be better off by £1,053.
- A senior nurse with five years experience on £42,618 will be better off by £1,202.
- The average police officer on £44,300 will be better off by £1,270.
- A cleaner working night shifts on £21,058 will be better off by £340.
- A typical junior doctor on £65,000 will be better off by £1,508.
- A typical self-employed plumber on £34,361 will be better off by £846.
- The typical teacher on £44,300 will be better off by over £1,270.
Following the National Insurance cuts in the last two tax events, together with the Government's reductions in the burden of the High Income Child Benefit :
- A couple with 2 school aged children, both working full-time, one on £60,000 and one earning the average salary (£35,400) will receive an annual gain of £4,600.
- A couple with 2 school aged children, both working full-time, one on £80,000 and one earning the average salary (£35,400) will receive an annual gain of £2,400.
- A single earner couple with 2 school aged children, where one is working full-time on £62k will receive an annual gain of £3,500.