In the Spring Statement, Sunak said the “difficult but responsible decision” to raise NI contributions was to help support social care and NHS funds.
However, to help shoulder the new levy and tackle the cost-of-living crisis currently sweeping the UK, the Chancellor has raised the NI threshold for the amount earned before incurring a tax to £12,570, a £3,000 increase, which will come into effect in July 2022.
“That’s a £6bn personal tax cut for 30m people across the UK, a tax cut for employees worth over £330 a year,” Sunak noted.
However, with inflation hitting a 30-year high at 6.2% in February, the Office for Budget Responsibility (OBR) has warned it could continue to rise, reaching 7.4% by the end of the year.
The NI insurance increase, announced in September last year, has already prompted a response from insurers such as Legal & General and Aviva, which have both amended its group income protection policies respectively to automatically consider the changes and help support employers with the additional costs.
Shaun Moore, tax and financial planning expert at Quilter, said Wednesday’s announcement was a “U-turn in all but name.”
“The increase in the primary threshold will mean that roughly 70% of national insurance payers will pay less NICs in 2022/23 than they did in 2021/22, according to the government’s own calculations,” Moore said.
“Anyone earning below £34,300 will now face a lower national insurance bill in 2022/23 than they currently face in this tax year. Anyone earning above this amount will still have a higher national insurance bill.”
However, Carter warned that the move will create “administrative problems” for employers, who will “have to start the tax year with one set of assumptions for national insurance calculations, to then have to change them from July.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “The Chancellor has been steadfast in his determination to implement the Health and Social Care levy, but his actions today have at least helped lower earners by raising the threshold at which they would have to start paying it. These actions will put some money back in their pockets at a time when costs are on the rise.
“However, by lifting the threshold, care must be taken that workers earning less than £12,570 per year do not lose access to vital National Insurance credits for state pension. The state pension forms the backbone of most people’s retirement and therefore, they should ensure they do not incur gaps unnecessarily, that mean they end up with less in retirement.”
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