The 1.25 percentage point rise in National Insurance will be reversed from 6 November, Chancellor Kwasi Kwarteng has announced on Thursday.
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 government noted.
The government will also cancel the planned Health and Social Care Levy – a separate tax which was coming into force in April 2023 to replace this year’s National Insurance rise. This will help almost 28 million people across the UK keep more of what they earn, worth an extra £330 on average in 2023-24, with an additional saving of around £135 on average this year.
“Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy,” Kwarteng said.
“Cutting tax is crucial to this – and 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.”
Kwarteng is set to announce today close to £200 billion of tax cuts, energy subsidies and planning reforms, aimed at supporting households and businesses hit by the highest inflation in decades.
The previous government decided to raise National Insurance by 1.25 percentage points in April 2022 to fund health and social care. The rate was due to return to 2021-22 levels in April 2023, when a separate new 1.25 per cent Health and Social Care Levy was due to take effect. Today’s legislation reverses the rise from earlier this year and cancels next year’s introduction of the Levy.
The Levy was expected to raise around £13 billion a year to fund health and social care. The chancellor confirmed that the funding for health and social care services will be maintained at the same level as if the Levy was in place
According to the Treasury, 920,000 businesses will see a cut in National Insurance bills, with 20,000 taken out of paying National Insurance entirely due to the Employment Allowance, a relief which allows eligible businesses to reduce their employer National Insurance contributions (NICs) bills, which rose in April 2022 from £4,000 to £5,000.
In particular, many small and medium businesses (SMEs) – who employ over 13 million people in the UK – will see a cut to their National Insurance bills. Next year this will be worth £4,200 on average for small businesses and £21,700 for medium sized firms who pay National Insurance. In total 905,000 micro, small and medium businesses will benefit from 2023-24, the Treasury revealed.
National Insurance thresholds increased in July 2022 to lift 2.2 million of the poorest people in the UK out of paying the tax. The chancellor has committed to retaining the level of these thresholds to support families. Taken together, the higher thresholds and the Levy reversal mean that almost 30 million people will be better off by an average of over £500 in 2023-24.
The government said it is implementing the changes as soon as possible and most employees will receive a cut to their National Insurance directly via payroll in their November pay, with some receiving it in December or January, depending on the complexity of their employer’s payroll software.
In addition, the chancellor is expected to announce in his fiscal statement today the 1.25 percentage point increase to income tax on dividends announced alongside the Levy, and introduced in April 2022, will be reversed from April 2023. Those who pay tax on dividends will save an average of £345 next year.
Ricard Barri ValentinesLinkedIn
