British Finance Minister Jeremy Hunt announced on Wednesday that he would reduce the amount of National Insurance social security contributions paid by 27 million workers, saving them hundreds of pounds per year.
Hunt stated that the government would lower the rate of National Insurance payments (NICs) for employees by two percentage points, a larger reduction than predicted, and by one percentage point for self-employed people.
Employees earning more than 12,570 pounds ($15,663) per year currently pay 12% in National Insurance Contributions (NICs) on wages up to 50,270 pounds, while self-employed people pay 9%.
Hunt stated that the cut, which takes effect in January, would be worth around 450 pounds per year for a 35,000-pound-a-year employee.
“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,” Hunt told parliament in his Autumn Statement budget update speech.
The Office for Budget Responsibility, Britain’s independent budget watchdog, calculated that the NICs rate drop will cost the government 10 billion pounds in the fiscal year 2024-25.
However, the reduction to social security payments come after the government previously frozen the National Insurance wage thresholds until April 2028.
Instead of allowing the thresholds to fluctuate with inflation as is customary, freezing them forces more workers to pay higher amounts of National Insurance when their incomes rise, producing more money for the government.
According to Paul Johnson, head of The Institute for Fiscal Studies, Wednesday’s announcement may be the first drop in the primary employee National Insurance rate in history, save from the reversal of a brief spike last year.
But he added: “Taxes on income and earnings are still much higher than three years ago. This undoes only a small fraction of the huge tax increase resulting from the freezing of income tax allowances and thresholds.”