NICs threshold raised by £3000 and income tax to fall 1% by 2024
Chancellor Rishi Sunak delivered the Spring Statement as the government outlined its plans to combat the cost of living crisis, which has seen inflation hit a 30-year high of 6.2%.
Despite the cost of living and fuel prices soaring, Sunak confirmed the controversial Social Care Levy will go ahead next month as planned, ignoring pleas from business experts to delay or scrap the changes altogether.
However, he has raised the national insurance threshold by £3,000 to £12,570, putting it in line with income tax. He also promised a cut to the basic rate of income tax from 20 per cent to 19 per cent by the end of parliament in 2024.
The move, Sunak said, will help low to middle-income earners.
NICs to align with income tax
The Chancellor told the House of Commons: “There is now a dedicated funding source for the country’s top priority, the NHS and social care, providing funding over the long-term as demand grows, with every penny going straight to health and care.
“If it goes, then so does the funding and that funding is needed now.
“[…] Our current plan is to increase the NICs threshold this year by £300. But I am not going to do that, I’m going to increase it by a full £3,000, delivering our promise to fully equalise the NICs and income tax thresholds.
“From this July, people will be able to earn £12,570 a year without paying a single penny in income tax or national insurance. That is a £6bn personal tax cut for 30 million people across the United Kingdom.”
Sunak added that increasing the NICs threshold would not only be worth over £330 a year for people, but “around 70 per cent of all workers will have their taxes cut by more than the amount they pay through the new levy.”
However, Rebecca Seeley-Harris asked on LinkedIn why the Chancellor didn’t go further: “He (Sunak) has raised the NICs rate threshold to the same as income tax, so why not just go the whole hog and combine them!”
And Joanne Harris, Head of Technical, Compliance and Payroll at Parasol Group, said the NICs rise would come as a “double-whammy” to umbrella workers, whose take-home pay will be impacted by rising employer and employee national insurance contributions above the threshold.
1% income tax cut too little too late
In response to the 1% income tax cut, which the Chancellor said will be introduced by 2024 – sparking rumours of a general election – Seb Maley, CEO of insurance provider Qdos, said: “The Chancellor may have pulled a rabbit from his hat with the 1% cut to income tax, but the reality is, by 2024, it could be too late.
“What’s more, this headline-grabbing measure will do little for limited company owners who slip through the cracks – just as they did during the pandemic.”
But Maley did welcome the £3,000 increase to the NICs threshold adding that it will “ease the pressure of rising costs for all self-employed workers, whether sole traders or limited company contractors.”
Fuel duty cut by 5p per litre
In light of the rising petrol and diesel prices, which have skyrocketed since Russia invaded Ukraine, Sunak announced a fuel duty cut of 5p per litre.
Currently, it sits at 57.95p per litre plus 20 per cent VAT applied on top. The price cut comes into effect at 6pm today and will be in place for 12 months.
On this, IPSE’s Andy Chamberlain shared his view: “While we welcome some of the measures announced today, such as the cut to fuel duty by 5p per litre, Rishi Sunak’s announcements today still don’t go far enough for thousands of freelancers that are recovering from the economic uncertainty caused by the pandemic.
He added: “Overall, today’s statement will do little to reassure self-employed households, already struggling as a result of existing government policies such as IR35, and now facing historic inflationary pressures.”
Labour hits back at Spring Statement
Responding to the measures announced in the Spring Statement, Shadow Chancellor Rachel Reeves, was critical of the Chancellor’s reluctance to introduce a windfall tax on oil and gas companies.
She said: “He (Sunak) continues to defend the record profits of the oil and gas producers who themselves admit that they now have “more money than they know what to do with.”
“When I set out Labour’s plans for a windfall tax in January, we estimated that it would have raised £1.2 billion. Now, because of the continued rise in global oil and gas prices, it would today raise over £3 billion. That’s money that could be used to help families, pensioners and businesses.”
The MP for Leeds West also said: “Today was the day he could have properly scrapped his national insurance hike. But he didn’t.”