Middle-classes will be worse off this year despite NI reductions

MIDDLE-CLASS earners will still be paying more tax despite Jeremy Hunt’s £10 billion in National Insurance cuts, the Institute for Fiscal Studies has said.

Anyone earning more than £60,000 faces a bigger tax bill this year because the Chancellor’s stealth income tax raid will cost them more than they will gain from reductions to other taxes on income. A person earning £61,000 will have to pay £80 per year more in personal taxes compared with 2021 because of the Chancellor’s tax policies. By 2027-28, they will be paying an extra £612, according to the think tank.

Mr Hunt on Wednesday announced another 2p cut in National Insurance, worth £10billion, on top of the 2p cut he made in the Autumn Statement.

The two tax cuts combined will save the average worker £900 per year, the Chancellor said. But Paul Johnson, the IFS director, said that the benefit will only be felt by people earning between £26,000 and £60,000 per year. Above and below these income levels, people will have to pay more tax.

This is because the National Insurance cuts will not offset the extra tax burden as a result of the Chancellor’s stealth tax raid.

Income tax thresholds are normally raised in line with inflation, but they will be held at 2021-22 levels until 202829

‘The big picture on tax is much the same. Come the election, tax revenues will be 3.9 per cent of income’

under government policy. This freeze means millions of people will be pulled into higher tax brackets as their salaries rise, in a process known as fiscal drag.

Overall, for every £1 given back to workers through the National Insurance cuts, Mr Hunt has taken away £1.30 between 2021 and 2024 due to the income tax threshold freeze, the IFS said. By 2027, he will have taken away £1.90.

Mr Johnson said: “The big picture on tax remains much the same. Come the election, tax revenues will be 3.9 per cent of national income, or around £100billion, higher than at the time of the last election.

“This remains a parliament of record tax rises.” Fiscal drag also means the benefit of the National Insurance cuts will quickly be eroded in the coming years.

In 2024-25, a person earning £56,000 will pay £408 less in tax than they did in 2021. But by 2027-28, they will be paying £123 more.

In the coming financial year, roughly half of all employees will be better off as a result of the combined tax changes. By 2027-28, this proportion will have shrunk to just a third.