National Insurance cuts will be outweighed by freezes in tax thresholds in 2024 for all but higher earners, according to new analysis.
British households will be poorer by around 4 per cent or £1,200 on average at the end of this parliament than at its start for the first time on record, according to analysis by the Resolution Foundation think tank, which says the wealthiest will benefit most from tax changes.
It say the National Insurance cuts coming in this January won’t have a positive impact on many struggling families because the freezing of tax thresholds mean the lowest half of earners will see more tax rises on average and only the highest earners will benefit. The Foundation says all employees who earn below £26,000 will be worse off or unaffected, while those who earn above this amount will gain. Those earning £50,000 will benefit the most.
It adds that despite falling inflation, heating and food bills will continue to be above pre-pandemic levels and cost of living support will have ended. However, with wage rises slowing at a slower rate than the fall in inflation, many will have seen real wage growth in 2023.
It adds that higher interest rates made households better off in 2023, with higher returns on savings outweighing higher mortgage bills. However, it predicts the reverse will be true in 2024, as 1.5 million mortgagors see their annual bills rise by an average of £1,800. Millions of renters are also predicted to face big hits when it comes to housing costs – only outright owners will see strong living standards growth, says the Foundation.
It states that different households will be affected in different ways, some winners and some losers, despite an easing of cost pressures. It says: “Outright owners, alongside those who benefit most from tax cuts and wage rises, may think a corner has been turned. Those seeing their mortgages and rents surge, or benefit support cut back, most certainly won’t.
“This mixed picture however, contrasts with the far simpler story over this Parliament as a whole: British households are on course to be poorer going into the coming election than they were coming out of the last one. That is something never seen before in modern British history. Our New Year’s resolution should be to make sure it never happens again.”