This will be a hugely welcome move as the decision to increase NI by 1.25 percent from April drove up tax bills for more than 32 million workers. It lifted the total NI rate to a punitive 13.25 percent and came at the worst possible time. Now Kwarteng is set to reverse the move.
Last week, the Government confirmed that it would hold a “fiscal event” to address the cost of living crisis.
Hard-working Brits are set to be celebrating a string of tax cuts after Kwarteng delivers his emergency budget on Thursday.
With the Commons due to go into recess again on September 22, this is new Prime Minister Lis Truss’s chance to put her stamp on the economy.
She is keen to cut the tax burden to encourage investment, boost spending and drive economic growth.
Her argument is that stimulating growth will clear the deficit faster than imposing taxes.
Truss repeatedly pledged to cut taxes during the Conservative Party leadership contest, including this April’s controversial 1.25 percent NI uplift.
The health and social care levy, as it was known, was announced by former Prime Minister Boris Johnson and his Chancellor Rishi Sunak.
It was designed to raise £12billion a year to clear post-Covid NHS backlogs and fund social care.
Yet it has put further pressure on cash-strapped Britons, who are already reeling as energy and food prices rocket.
Employer also have to pay it, making it more costly to employ staff and hitting profits.
Hargreaves Lansdown senior personal finance analyst Sarah Coles originally calculated that the NI hike would cost a £30,000 earner an extra £333 a year to £2,786.
READ MORE: Liz Truss’ plans to slash National Insurance could hit state pension
Sunak acknowledged its massive unpopularity by watering down the proposal. He increased the threshold at which workers start paying NI, by bringing it into line with the £12,570 personal allowance.
Axing the levy would still be a hugely popular move and Coles said: “This was something Liz Truss repeatedly pledged during the leadership contest, so is a key priority.”
Political analysts expect Kwarteng to smash the hated NI hike within days, the only question is when the change actually comes into force.
Some reports suggest it will be abolished in time for November’s pay packets, putting money into people’s pockets in the run up to Christmas. It will also help them cope with higher winter energy bills.
Others have suggested he could wait until next year. Tim Walford-Fitzgerald, partner at accountancy firm HW Fisher, said. “I would expect Kwarteng to allow the levy to expire naturally on April 5, 2023, rather than reverse it in the middle of the tax year.”
Any delay may prove unpopular, though, as Britons need urgent help now as the cost of living crisis rages.
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Myron Jobson, senior personal finance analyst at Interactive Investor, said the case for making tax cuts is strong. “They could stimulate greater consumer spending and encourage more investment in UK businesses.”
Scrapping the 1.25 percent NI uplift “would put tax pounds back into consumers’ pockets”, he added.
Truss opposed the NI hike rise in a Cabinet meeting last year, bringing her into direct conflict with Sunak.
The move became an issue in Conservative party leadership campaign, causing arguments behind the scenes.
Laura Suter, head of personal finance at AJ Bell, said: “Cutting NI was top of the agenda for Liz Truss during her campaign and we’re all keen to see how she goes about it.”
We will find out on Thursday.
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