Brits need tax threshold help on top of NI cut
TODAY’S National Insurance cut will save Britons up to £330 but calls are growing for Chancellor Rishi Sunak to give workers another helping hand and scrap his “destructive” income tax threshold freeze.
Last year, Sunak froze income tax thresholds for five years, in a move that will drive millions into HMRC’s clutches.
Unless the Government eases its attack on income, the savings from today’s NI cut will be more than wiped out, experts say.
As we reported yesterday, 30 million will pay less NI from today, as the threshold for paying is lifted to £12,570, in line with income tax.
Someone earning £14,000 a year will see their NI bill plunge from £531.84 to £189.48, saving them £342.36 a year.
A £20,000 earner’s bill will drop from £1,251.84 to £984.48, saving them £267.36, figures from accountancy firm HW Fisher show.
Those on higher incomes will save less, with a £40,000 earner better off by £17.36. Someone on £60,000 pays £232.64 more.
Tax partner Stevie Heafford said this is down to the 1.25 per cent NI hike, which came into effect on April 6, 2022, to fund social care and the post-Covid NHS backlog. He said: “It will not solve the cost-of-living crisis, with the Bank of England predicting inflation could rise as high as 11 per cent.”
Now experts are urging Sunak to call off his five-year income tax freeze to ease the pressure on cash-strapped households.
In March last year, he froze the basic rate income tax threshold at £12,570 until 2025/26, while the higher rate threshold is fixed at £50,270.
Someone earning £11,750 last year whose wages grew by the average would earn £12,549 this year, tipping them into tax territory, while someone earning £47,500 last year will now pay 40 per cent tax.
Laura Suter, head of personal finance at AJ Bell, said the number of higher-rate taxpayers will jump by 44 per cent due to the “destructive” move. The picture looks worse over five years. She added: “The personal allowance would have hit £15,300 in 2026/27 if uprated in line with inflation. Due to the freeze, it will be just £12,800 instead.”
Likewise, the higher rate threshold would have hit £61,200 in 2026/27, but instead it will stand at £51,200. “Those who are just below the thresholds are likely to feel the sharpest burn,” Suter said.
It means a £25,000 earner will pay £1,427 more tax over five years, while someone on £50,000 will pay £5,773 more.
The UK tax burden is already at a 70-year high. The current freeze will cause long-term damage, as even when thresholds start rising they will begin from a much lower base.
Bestinvest personal finance analyst Alice Haine said: “The good news is eight million vulnerable households will receive the first cost-of-living payments of £326 on July 14, with a second instalment of £324 in the autumn, as part of a £1,200 support package.”