Cost of living: ‘Biggest tax cut in a decade’ kicks in to help 30 million people | Economic news
The amount you can earn before you have to pay National Insurance (NI) has been increased from today, a move Boris Johnson has described as the ‘biggest tax cut in a decade’ to help to cope with the rising cost of living.
The government says 30million people will collectively benefit from £6billion of the threshold change from £9,880 to £12,570.
This would save a typical worker £330 over 12 months and save 2.2 million people from paying NI contributions.
The Prime Minister told his cabinet on Tuesday – just hours before the shock resignation of Sajid Javid and Chancellor Rishi Sunak – that the measure was part of a £37billion support package that the government had put in place to help families cope with the rising tide of daily expenses, from fuel and food to household energy.
How does the NI change affect you?
The rate of inflation has reached levels not seen in 40 years – and is set to rise further later this year when the energy price cap is raised again, potentially adding £1,000 more to the average annual bill.
The NI threshold change follows a controversial 1.25 percentage point increase in the NI in April.
This was brought in by Rishi Sunak, despite intense pressure to postpone the hike, to help pay for investments in health and social care.
Personal finance experts say a £27.50 rise in the average wage per month will do little to compensate workers, as wages are rising at a rate well below the 9% inflation rate.
Commentators have also recently pointed out how income tax thresholds, frozen until 2026, are pushing more people to pay higher tax bills.
Figures released by HM Revenue and Customs last week showed almost two million higher and additional rate taxpayers had been created in the space of three years.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Unfortunately over time the tax burden will increase.
“Tax thresholds frozen until 2026 mean that as wages gradually rise, the taxman (sips) more and more of your money.”
Ms Coles added: “Any saving will be welcome at this time, but it will be a drop in the bucket.
“Someone paying £10 or £20 less in tax every month won’t notice once they factor in the rising cost of everything from energy to food and fuel. “
Additional household support is on the horizon.
More than eight million households will start to see cost of living payments hitting their bank accounts next week, with an initial payment of £326 paid from July 14 to all low-income households receiving benefits.
The second installment of the £650 payment is expected to follow in the autumn, while pensioners and people on disability benefits will also receive help.
From October, all households will get £400 off their energy bills – as a grant rather than a loan – regardless of what they earn.