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The Chancellor has announced plans to equalise income tax and National Insurance Contribution thresholds later this year, which he says will represent an average £330 a year cut to people’s bills.
The Chancellor has announced plans to increase the threshold for National Insurance Contributions [NICs] to make it equal with the income tax threshold, meaning people can earn up to £12,570 before they start paying tax or NICs.
In his spring statement which has attracted criticism for its failure to address those on benefits who are not earning, Rishi Sunak said the change would come in in July and called it the largest single personal tax cut in a decade, saying it would reward work. He added that for 70% of people the rise in the threshold – worth £330 a year to the average person – would be more than the new health and social care levy coming in in April.
However, experts say that the remaining 30% – those earning more than £37,000 – will have a higher tax bill. Someone earning £50,000 could end up paying about £100 more this year than last, while a typical higher-rate taxpayer earning £67,000 will be paying £380 more in NICs. An employee earning £100,000 a year currently pays £489.90 a month in NICs.
Sunak also announced that by 2024 income tax will be cut by 1% – down from 20p in the pound to 19p in the pound; a fuel duty cut of 5p per litre until March 2023 to take effect from 6pm tonight; 0% VAT on solar panels and other energy efficiency measures; and a doubling of the household support fund for the most vulnerable to £1bn.
Other announcements included a focus on how to incentivise training, a 50% business rates discount for SMEs in the retail, hospitality and leisure sectors from April, an increase in the employment allowance – relating to employer NICs – of around £1K per company per year and the expansion of research & development tax relief to include areas such as cloud computing and data storage.
Labour said the Government had failed to understand the scale of the challenge facing people due to the cost of living crisis. The Early Years Alliance criticised the failure to mention childcare in the announcement. It had been hoping for news that the underspend on Tax-Free Childcare would be reallocated to the sector and said that, given the financial threat to some nurseries, an extension of the business rates cuts to the sector would have been welcome.
Experts have pointed to the lack of any help for those on benefits and not earning, including pensioners. Paul Johnson, Director of the Institute for Fiscal Studies, said: “The big omission from this statement was anything for those subsisting on means-tested benefits. They will be facing cost of living increases of probably 10%, but their benefits will rise by just 3.1%. And have been cut compared to last year if you account for the withdrawal of the £20 Universal Credit uplift.”
Torsten Bell from the Resolution Foundation added: “I really can’t believe this package does next to nothing for those getting hardest hit by rising prices – those who are disabled and not working just got told they are on their own (after losing £1,000 in income in the Autumn).”
In other policy news, rule changes to statutory sick pay (SSP) introduced at the start of the pandemic are set to change later this week. From March 24th, employees will no longer be able to claim SSP from their first day of being absent as they have been able to during Covid. Instead, workers will be able to get their sick pay from the fourth day of their absence. The change comes as the legal requirement to self-isolate even if workers test positive for the coronavirus is dropped.