Rishi Sunak announces £3,000 hike in threshold for paying national insurance

But Chancellor warned that only only one third of £6bn spent will go to poorest half of earners

Rob Merrick
Deputy Political Editor
Wednesday 23 March 2022 15:07 GMT
Sunak announces £3,000 rise in threshold for paying national insurance

People will keep an extra £3,000 before they pay national insurance, under the “largest ever” tax cut announced by Rishi Sunak.

The chancellor sparked a surprise by scrapping a plan to increase the threshold by just £300 – replacing it with a “personal tax cut” worth £330 to the average worker costing £6bn, he told MPs.

The Institute for Fiscal Studies said the move would compensate 70 per cent of workers who will be hit by the 1.25 per cent hike in national insurance contributions (NICs) – kicking in next week.

But the Resolution Foundation think-tank warned only one third of the £6bn cost will go to the poorest half of earners in the United Kingdom.

Mr Sunak also announced that the basic rate of income tax will be cut from 20p to 19p on the pound – before voters go to the polls in 2024.

The national insurance change will bring the threshold to start paying the levy into line with that for income tax – at £12,570 – and fulfils a Conservative manifesto pledge.

But the chancellor scuppered expectations that he would try to ease the cost of living crisis by increasing benefit payments through changes to universal credit.

Those payments will raise by just 3.1 per cent next month – when inflation is tipped to average 7.4 per cent in 2022 – leaving claimants with a sharp real-terms cut.

The key “rabbit” in what was expected to be a relatively news-free spring statement came after Mr Sunak also announced an immediate 5p cut in fuel duty.

The chancellor revealed he will publish a “tax plan” that will underline that the government’s priority will be “lower taxes not higher spending”.

“Our current plan is to increase the NICs threshold this year by £300,” he told the Commons.

“I’m not going to do that, I’m going to increase it by the full £3,000 – delivering our promise to fully equalise the NICs and income tax thresholds.

“And not incrementally over many years, but in one go, this year. From this July, people will be able to earn £12,570 a year without paying a single penny of income tax or national insurance.

“That is a £6bn tax cut for 30 million people across the UK. A tax cut for employees worth over £330 a year. The largest increase in a basic rate threshold ever – and the largest single personal tax cut in a decade.”

However, the chancellor insisted the national insurance contributions hike – for the NHS and, eventually, social care – must go ahead, saying: “If it goes, so does the funding.”

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