The recent hike in National Insurance (NI) rates will be reversed this coming November, according to a Growth Plan statement by Chancellor Kwasi Kwarteng, alongside a raft of other measures introduced during his latest mini-budget on 23rd September 2022.
The National Insurance increase was introduced back in April 2022 by then Chancellor, Rishi Sunak and was dubbed a “Health and Social Care Levy” with the increased rate ring fenced to fund health and social care services. The levy was ostensibly announced to help the NHS recover in the wake of the Coronavirus pandemic and to provide ongoing support from April.
The levy was initially proposed to raise around £13bn a year to fund social care and to help deal with a backlog in healthcare services that built up during the course of the pandemic. This move to scrap the increase means that the funding for these services will now come from general taxation according to the chancellor.
The Treasury has said that the reversal of the increase is set to save nearly 28 million people an average of £330 per year. The change has been motivated by the ongoing cost of living crisis, with the government being put under increasing pressure to provide support, particularly for the hardest hit households.
The reversal of the National Insurance increase signals the new chancellor’s shift in priorities:
"Taxing our way to prosperity has never worked," Mr Kwarteng said.
"To raise living standards for all, we need to be unapologetic about growing our economy. Cutting tax is crucial to this."
Most employees are set to receive the tax cut in their November pay packets.
What is National Insurance and who pays it?
National Insurance payments were introduced in 1911 in the UK. Employees pay National Insurance on their wages as well as income tax; employers pay extra NI contributions for staff, and the self-employed pay National Insurance on their profits.
There are weekly thresholds for National Insurance. The first £242 earned per week incurs no costs; from there, the rate shifts to 13.25% on earnings between £242.01 and £967 and 3.25% on the rest.
Roughly speaking, people who earn more than £12,570 a year pay National Insurance. The inference from many commentators is that those on the higher pay packets are set to benefit the most from these changes, despite the measure being proposed as a way to help ease the cost of living crisis.
For example, somebody earning £20,000 will save about £93 a year, whilst someone earning £100,000 will save £1,093, compared to the current rate.
For businesses and in particular- their payroll teams, this latest announcement from the Chancellor will mean the second significant shift in National Insurance rates in half a year and will require diligence in ensuring accuracy in its implementation.
The reversal of the NI increase is just one of several proposed measures Chancellor Kwasi Kwarteng has announced alongside his mini-budget. Other changes include a cut in basic rate of income tax to 19% from April 2023, a freeze on energy bills, a cut to stamp duty for the first £250,000 of the cost of a property, a cancellation of the rise in corporation tax and a reform of the IR35 off-payroll working rules.
The scrapping of the increase has been closely linked with the ongoing cost of living crisis. If you’d like to find out more about some of the steps you can take to safeguard the financial wellbeing of your people during these difficult times, read our cost of living blogs here.