22 September 2022
If you are covering the government’s reversal of the 1.25 percentage point rise in National Insurance, please find a comment from Shaun Moore, tax and financial planning expert at Quilter:
"The Tory u-turn on the 1.25 percentage point increase has been confirmed by the new Chancellor, Kwasi Kwarteng. It means people will be in an even better position than when the policy was first announced, as Sunak had already caved to pressure and increased the primary threshold for paying NI – and that remains in place.
"The 1.25% reduction means that someone earning £50,000 a year would see an extra £40 in their pocket each month, equating to £467 extra annually. Whereas the average graduate earning £27,000 would see a miserly £15 extra a month or £180 a year. Reversing the NI hike has a much greater impact on someone earning £100,000, who would save £91 monthly or £1,092 annually.
"The social care levy was also due to apply to pensioners from next year, the NI reversal will save them 1.25% of applicable earnings from 2023.
Impact of NI reversal (annualised using July to Apr 22/23):
|
Salary |
Current yearly NICs |
Yearly NICs post-reversal |
Current monthly NICs |
Monthly NICs post-reversal |
Yearly saving |
|
£27,000 |
£1,911.96 |
£1,731.60 |
£159.33 |
£144.30 |
£180.36 |
|
£50,000 |
£4,959.48 |
£4,491.60 |
£413.29 |
£374.30 |
£467.88 |
|
£100,000 |
£6,611.40 |
£5,518.60 |
£550.95 |
£459.88 |
£1,092.80 |
"It is worth remembering that the national insurance primary threshold is now tied to the personal allowance, which is fixed until at least 2025/26 so the bandings will remain static for a while yet. The government previously announced that the primary threshold and lower profits limit will only increase in line with CPI from the 2026/27 tax year onwards. This means that the benefit to NICs payers will still reduce over time as wage inflation pushes people into paying more.
"Axing this additional 1.25 percentage points of NI contributions will provide a boost for consumers but leaves a gaping hole in Treasury funding plans for social care. Kwarteng says overall funding for health and social care services will be maintained at the same level as if the Levy were in place and come from general taxation. This sounds like wishful thinking and is effectively taking a gamble with social care funding in the hope the tax takes increases due to greater economic activity. Let’s hope tomorrow’s ‘mini budget’ reveals more about how the Chancellor plans to raise the much-needed funds for social care."
