The UK Government would reduce the rate of National Insurance contributions

The UK Government would cut the amount of National Insurance social security contributions paid by 27 mn workers in a move that will save employees hundreds of pounds a year, according to Reuters.

Employees earning more than about 12,570 pounds ($15,663) a year currently pay 12% in NICs on their earnings up to about 50,270 pounds, while self-employed workers pay 9%.

British finance minister Jeremy Hunt said the government would reduce the rate of National Insurance contributions (NICs) for employees by 2 percentage points, a bigger reduction than expected, and for the self-employed by one percentage point.

The cut, effective from January, would be worth about 450 pounds a year for an employee earning 35,000 pounds.

The UK Government would reduce the rate of National Insurance contributions

Britain’s independent budget watchdog, the Office for Budget Responsibility, estimated the NICs rate cut would cost the government 10 bn pounds in the 2024-2025 financial year.

The cuts to social security payments come after the government previously froze the earnings thresholds for National Insurance until April 2028.

Freezing the thresholds, rather than allowing them to rise with inflation as is usual, pulls more workers into paying higher amounts of National Insurance as their earnings rise, raising more money for the government.

The new announcement may be the first cut in the main employee National Insurance rate in history, apart from the reversal of a short-lived hike last year.

Taxes on income and earnings are still much higher than three years ago. This undoes only a small fraction of the huge tax increase resulting from the freezing of income tax allowances and thresholds.

by Andrew MacAskill