National Insurance levy scrapped – what it means for you
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The 1.25 percent Health and Social Care Levy was introduced in April this year, lifting the NI rate to 13.25 percent. The tax was designed to raise £12billion a year to clear post-Covid NHS backlogs and fund social care.
But new Chancellor Kwasi Kwarteng brought forward plans to bin the tax, to boost the take home pay of Britons.
Analysts at Hargreaves Lansdown calculated that the NI hike would cost a £30,000 earner an extra £333 a year, amounting to £2,786.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said of axing the levy: “This was something Liz Truss repeatedly pledged during the leadership contest, so is a key priority.”
The Treasury has estimated that almost 28 million people will keep an extra £330 of their money on average next year, while 920,000 businesses are set to save almost £10,000 on average next year thanks to the change.
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The policy needs to be voted on in the House of Lords before it can come into effect, with the vote set to take place later this month.
The reversal is expected to come into effect from November 6, helping boost people’s pay packets in the run up to Christmas, as energy bills increase.
Average energy bills are to rise to £2,500 a year from this month, with the introduction of the Government’s Energy Price Guarantee.
The Treasury said most employees would receive a cut to their National Insurance contribution directly via their employer’s payroll in their November pay, although some may be delayed to December or January.
Myron Jobson, senior personal finance analyst at Interactive Investor, said making tax cuts could help boost the economy.
He said: “They could stimulate greater consumer spending and encourage more investment in UK businesses.”
The analyst said scrapping the 1.25 percent NI uplift “would put tax pounds back into consumers’ pockets”.
Mr Kwarteng said cutting taxes is “crucial” to growing the economy and improving the lives of Britons.
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He said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this. Whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
Workers recently had a boost to their pay as the threshold at which workers pay NI was raised in July.
The threshold was increased from £9,880 to £12,750, to bring it in line with the income tax personal allowance.
The Government’s online calculator estimated a taxpayer earning £18,000 will have an extra £310 a year thanks to the threshold increasing.
Someone earning £20,000 a year would be £291 a year better off and a worker on a £30,000 salary would save £197.
However, the calculator may not reflect a particular individual’s circumstances, as it does not take into account bonuses, job changes, or other factors.
National Insurance applies to anyone aged 16 or over who earns £190 a week or more as an employee or a self-employed person who makes a profit or £6,725 or more a year.
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