Yahoo Finance Jeremy Hunt slashes National insurance rate by 2% from January
Chancellor Jeremy Hunt announced a national insurance cut for 27 million workers across the UK, and and extended a tax break for businesses as part of his autumn statement.
The two percentage point cut from 12% to 10% in NI contributions will be brought in from 6 January as opposed to the start of the tax year in April, so "people can see the benefit in their payslips at the start of the new year".
The emergency legislation will be worth £450 for someone on average earnings of £35,000 and lead to a 94,000 increase in the British workforce. The average nurse will save £520, while a typical police officer would save £630, Hunt said.
Read more: What the autumn statement means for your finances
"If we want people to get up early in the morning, if we want people to work nights, if we want an economy where people go the extra mile and work hard then we need to recognise that their hard work benefits all of us. So today, Mr Speaker, I am going to cut the main 12% rate of employee National Insurance," he said.
However, Rachel Reeves, the shadow chancellor argued: “Today’s 2% cut will not remotely compensate for the tax increases already put in place by this Conservative government.
“The fact is that taxes will be higher at the next election than they were at the last. This is the legacy of the Conservatives and that is their record.”
Watch: Hunt says autumn budget sees biggest UK tax cuts since 1980s: ‘turned a corner’
Tax cuts for businesses
The NI move came alongside the biggest permanent tax cut in modern British history for businesses, which is set to help them invest for less and boost investment by £20bn per year over the next decade.
The measure allows firms to offset investment in machinery, IT and equipment against corporation tax, while new measures announced today will also extend business rate relief for many small and medium enterprises (SMEs), including pubs and other hospitality businesses.
The finance minister also scrapped Class 2 National Insurance to simplify the tax system for the self-employed. Class 4 National Insurance is also set be cut by one percentage point to 8% from April. These measures combined will save self-employed workers £350, and almost two million people will benefit from the move.
Growth: alcohol duty and the triple lock
It comes as Hunt delivered 110 growth measures, including freezing alcohol duty and maintaining the triple lock pension, in an aim to revive both the UK’s struggling economy ahead of a looming general election next year.
According to the Office for Budget Responsibility's (OBR) latest forecasts, the British economy is now 1.8% larger than it was before the COVID outbreak, but the statutory body downgraded its growth forecasts for the UK in 2024, 2025 and 2026.
"After a global pandemic and energy crisis, we have taken difficult decisions to put our economy back on track,” he told the House of Commons on Wednesday.
“We have supported families with rising bills, cut borrowing and halved inflation. Rather than falling into a recession, the economy has grown. Rather than falling as predicted, real incomes have risen. Our plan for the British economy is working."
He added: "But the work is not done. Conservatives know that a dynamic economy depends less on the decisions and diktats of ministers than on the energy and enterprise of the British people.”
Watch: Autumn statement live updates: Jeremy Hunt set to unveil tax cuts
Alcohol duty has been frozen for six months until August next year, which means no increase in duty on beer, cider, wine or spirits.
"So as well as confirming our Brexit Pubs Guarantee, which means duty on a pint is always lower than in the shops, I have decided to freeze all alcohol duty until August 1st next year," Hunt said.
Experts have estimated that independent pubs, small shops and restaurants will save between £11,728 and £16,507 each on average in business rates next April thanks to the announcements.
Meanwhile, Hunt confirmed that he would honour the government's commitment to the pensions triple lock.
From April 2024, the government will increase the full new state pension by 8.5% to £221.20 a week, worth up to £900 more a year
"That is one of the largest ever cash increases to the state pension – showing a Conservative government will always back our pensioners."
Sian Steele, head of tax at professional services and wealth management firm Evelyn Partners, said: “This will be very welcome to those receiving, or about to receive, the state pension at a time of rising living costs.
“With an election on the horizon, the political consequences of tinkering with the triple lock might have figured in the chancellor’s calculations. Whether the state pension can be increased in the same way over the long term alongside an ageing population is another question."
Read more: Autumn statement: Why it matters for your pensions
Pension savers will also have the right to have “one pension pot for life”, Jeremy Hunt said.
“I will also consult on giving savers a legal right to require a new employer to pay pension contributions into their existing pension pot if they choose, meaning people can move to having one pension pot for life.
“These reforms could help unlock an extra £75bn of financing for high-growth companies by 2030 and provide an extra £1,000 a year in retirement for an average earner saving from 18.”
The minimum and living wage
It comes as the government has also already announced an increase in the national living wage for almost three million workers in Britain to £11.44 from April.
Minimum wage is currently £10.42 an hour for workers over 23, however, the new rate will apply to workers over 21 for the first time.
It will mean an £1,800 annual pay rise next year for a full-time worker on the living wage, while 18 to 20-year-olds will receive a £1.11 hourly rise to £8.60.
Read more: Pound wavers as Jeremy Hunt unveils raft of tax cuts in autumn statement
Professor Adrian Pabst, deputy director of social and political economy at NIESR, said: "After the decline in real wages since 2021, it is a welcome boost to living standards for those who been hit hardest by the cost-of-living crisis.
"What is necessary going forward is sustained real wage growth for people in the bottom half of the income distribution, which will require a substantial increase in both public and business investment to boost productivity.”
Apprentices will also get a rise, with an hourly pay increase of over 20%, going from £5.28 to £6.40 an hour. During his speech to MPs he announced a further £50m for apprenticeships in key sectors.
Benefit payments
Meanwhile, benefits will rise in April 2024 in line with the inflation measure from September, rather than the lower measure from October. This is an average increase of £470 for 5.5m households next year.
Gary Smith, GMB General Secretary, said: “Today’s measures go nowhere near fixing the damage this Conservative Government has done to people’s finances.
“The cut to NI will mean just over £150 a year to the lowest paid; a drop in the ocean when mortgages have doubled and energy bills are crippling household finances. Working people aren’t fools and won't forgive or forget who trashed our country’s economy.”
Read more: UK wages grow faster than inflation
Interest rates
Steven Bell, chief economist (EMEA) at Columbia Threadneedle Investments warned that Hunt’s tax cuts is likely to make the Bank of England more cautious about cutting interest rates.
“These tax cuts come after a massive rise in the tax burden in the UK so it’s more a question of reducing the tax increase. Nonetheless, with lower inflation, lower mortgage rates and generous social security payments feeding through, it is possible that consumer spending picks up from its current depressed levels.
"The Bank of England may be reluctant to join the rate cutting party until it is sure that inflation is on a path to the 2% target on a sustainable basis.”
Hunt told the Commons that the Office for Budget Responsibility (OBR) believes inflation will fall to 2.8% by the end of next year, before falling to the 2% target in 2025.
"I will not take risks with inflation, and the OBR confirm that the measures I take today make inflation lower next year than it would otherwise have been," he said.
“I thank the Independent Bank of England Monetary Policy Committee for their crucial role in bringing down inflation. We will continue to back them to do whatever it takes until the job is done. But as we do, we will continue to support families in difficulty.”
He added that according to the OBR, borrowing is lower this year and next, and on average across the forecast by £0.7bn every year compared to the Spring budget forecasts.
Watch: Jeremy Hunt hopes autumn statement will make 'really big difference'
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