The 1.25 per cent rise to National Insurance, which was announced by his predecessor, Rishi Sunak, to help fund health and social care, will be scrapped from November 6.
The Chancellor said scrapping the rise will reduce tax for 920,000 businesses by nearly £10,000 on average next year, as they will no longer pay a higher level of employer National Insurance.
The Health and Social Care Levy, a separate tax which was coming into force in April next year to replace this year’s National Insurance rise, will also be cancelled.
In a tweet ahead of today’s mini-budget announcement, Kwarteng said: “I can confirm that this year’s 1.25 per cent point rise in National Insurance will be reversed on November 6.
“Its replacement – the Health and Social Care Levy planned for April 2023 – will be cancelled. A tax cut for workers. More cash for businesses to invest, employ, and grow,” he added.
The levy was expected to raise around £13 billion a year to fund social care and deal with the NHS backlog, which has built up due to the Covid pandemic.
The Chancellor, and Prime Minister Liz Truss, have argued that any lost revenues will be recovered through higher economic growth stimulated by the cuts in taxation.
“Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy,” the Chancellor said.
The Treasury said most employees can expect a cut to their National Insurance contribution directly via their employer’s payroll in their November pay, although some may be delayed until December or January.
The National Insurance increase reversal comes as the Bank of England raises interest rates to 2.25 per cent from 1.75 per cent, the highest-rate level since the 2008 financial crisis.