NI increase to be scrapped from November
Chancellor says he will also jettison health and social care levy that was set to replace the tax in April
‘Some said that the rise in the cost of employing people meant they would think twice about taking staff on, or make the decision to let colleagues go’
THE increase in National Insurance introduced by Boris Johnson will be reversed from Nov 6, Kwasi Kwarteng announced yesterday.
Ahead of his mini-budget today, the Chancellor confirmed he was cancelling the 1.25-percentage-point increase imposed by Rishi Sunak, the former chancellor, to pay for social care and to deal with the NHS backlog.
He also said he would be scrapping the planned health and social care levy, which was due to come into effect next April to replace the NI rise.
The Government tabled legislation in the Commons yesterday to enact the tax changes. The Treasury said the aboutturn would reduce tax for 920,000 businesses by nearly £10,000 on average next year, as they will no longer pay a higher level of employer NI.
It will also save workers an average of around £135 this year, rising to £330 in 2023/24.
Mr Kwarteng said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
The Treasury said most employees will receive a cut to their NI contribution directly via their employer’s payroll in their November pay, although some may be delayed to December or January.
The levy was expected to raise around £13billion a year to fund social care and deal with the NHS backlog which has built up because of the Covid pandemic. Mr Kwarteng said funding for health and social care services will be maintained at the same level as if it were still in place.
The Chancellor and the Prime Minissmall ter have argued that the lost revenues will be recovered through higher economic growth stimulated by the cuts in taxation.
But with Mr Kwarteng also preparing to scrap a planned rise in corporation tax, some economists have warned about the sharp rise in government borrowing.
The Institute for Fiscal Studies said the plan to drive growth was “a gamble at best” and that ministers risked putting the public finances on an “unsustainable path”.
The Chancellor is also set to confirm in today’s mini-budget that the increases to dividend tax rates will be scrapped from April 2023.
The increased dividend tax was introduced in April 2022 to ensure those who gained income from dividends contributed the same amount to help fund health and social care.
The Treasury said the NI cut would be worth £4,200 on average for small businesses and £21,700 for mediumsized firms. In total, 905,000 micro, and medium businesses will benefit from 2023/24.
NI thresholds increased in July this year to lift 2.2million of the poorest people in the UK out of paying the tax.
The Chancellor has committed to retaining the level of these thresholds to support families. Taken together, the higher thresholds and the levy reversal mean that almost 30 million people will be better off by an average of more than £500 in 2023/24.
Kitty Ussher, chief economist at the Institute of Directors, said raising employers’ NI had been “a mistake”.
“This was quite simply a tax on jobs, which businesses had to pay regardless of whether they are profitable,” she said.
“Many of our members told us that the impact of the increase was that they would have no choice but to push up prices, making inflation even worse.
“Others said the rise in the cost of employing people meant they would think twice about taking new staff on, or potentially make the difficult decision to let colleagues go.”