Yahoo Finance National insurance cuts to take effect with 'average saving' of £900 a year
NI and high income child benefit charge changes come into force from 5 April
As many as 29 million Brits will see their national insurance (NI) contributions reduced today as "record tax cuts" come into force.
The move, first announced by chancellor Jeremy Hunt, means the average employee on £35,400 a year will save more than £900.
Since Autumn 2023, NI contributions for workers have been slashed by a third — the largest cut in history.
The British government now have a longer-term ambition to end the double tax on work and abolish employee and self-employed NICs altogether.
Since January, the main rate of employee national insurance has been cut from 12% to 8% for UK workers.
Meanwhile, over 2 million self-employed people will benefit from the main rate of Class 4 NICs being cut from 9% to 6%, alongside the abolition of the requirement to pay Class 2 NICs. This saves an average self-employed person on £28,000 over £650 a year.
Read more: What a 2p national insurance cut means for your finances
"These cuts are possible because the economy is turning a corner, thanks to the government’s decisive action to bring inflation down from 11.1% to 3.4% and ensure borrowing costs start to fall. Because of this progress, the government can now cut taxes to reward work and grow the economy," HM Treasury said.
The tax cuts, worth £20bn a year, mean people on average salaries will now pay less in personal taxes than they would in any other G7 country.
Chancellor Jeremy Hunt, said: "The record tax cuts taking effect...show our economic plan is working – because of the progress we’ve made we’re putting hundreds of pounds a year back into the pockets of working people across the country.
“It shows we stand behind those who work hard and fires the starting gun on our long-term ambition to end the unfair double tax on work.”
The tax cuts also aims to grow the British economy by bringing more people into the labour market. The Office for Budget Responsibility (OBR) expects that, as a result of these combined cuts, total hours worked will increase by the equivalent of almost 200,000 full-time workers by 2028-29.
Read more: Estimate how the April 2024 National Insurance contributions changes will affect you
Prime minister Rishi Sunak said: “The progress we have made on the economy means we can reward work with a tax cut worth £900 for the average earner.
“This marks the next step in our plan to end the unfairness of double taxation of work by abolishing national insurance in the long term.”
The cuts come into effect on the same day as an increase to the income threshold at which the high income child benefit charge (HICBC) starts – from £50,000 to £60,000 – taking 170,000 families out of paying the charge altogether.
The rate at which the HICBC is charged will also be halved from 1% of the child benefit payment for every additional £100 earned above the threshold, to 1% for every £200.
This means child benefit will not be withdrawn in full until individuals earn £80,000 or higher. As a result of these changes, 485,000 hard-working families will gain an average of £1,260 towards the costs of raising their children in 2024/25.
Meanwhile, on 8 April, the government will "stand by its commitment to maintain the triple lock" by raising the full basic state pension by 8.5% to almost £170 a week, after the largest ever cash increase last year.
According to the Resolution Foundation, changes like the introduction of the triple lock and new state pension have meant pensioners are on average £1,000 better off than in 2010.
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