On 6 January, changes to National Insurance contributions (NICs) announced by the government in November 2023 took effect, reducing the main rate of NICs from 12% to 10%.
The Prime Minister has claimed that this reduction is worth £450 to the average worker, saying during an interview on Sunday with Laura Kuenssberg yesterday “for someone earning £35,000, that’s a tax cut worth £450”. A similar claim was posted on the Treasury’s X (formerly Twitter) account.
It is true that someone earning £35,000—roughly the median full-time annual earnings in the UK—will pay around £450 less in National Insurance this year than they would have were the main rate to have stayed the same.
However, this figure only looks at the impact of the National Insurance reduction in isolation. When viewed alongside ongoing freezes to the threshold at which people begin paying National Insurance contributions and income tax, the savings for someone on the average salary are substantially smaller.
According to the Institute for Fiscal Studies (IFS) “An employee earning £35,000 will gain about £130 more from the NICs cut than they lose from this April’s freeze in thresholds.”
These changes also don’t impact everyone equally. As the IFS states, those earning above the average salary will save more, while those who earn less will save less, and for those earning between £12,570 and around £29,000, there will be a net increase in the amount of tax they pay this year.
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What about the long term?
The NICs threshold and personal allowance freezes are set to remain in place until 2027/28. This means that as wages increase over time, more people will begin paying tax, or paying tax at a higher rate. This is known as fiscal drag.
The IFS estimates that by 2027/28, “an employee earning £35,000 will be paying about £440 a year more in direct tax overall as a result of all the changes to income tax and NICs since 2021.”
What has Labour said?
Labour has claimed that under the government’s tax changes “families will be £1,200 worse off”.
At an event on Friday, 5 January, shadow chancellor Rachel Reeves MP reportedly claimed “Working people are worse off under the Tories—£1,200 for an average family extra tax this year because of choices by Rishi Sunak and this Conservative government.”
She later repeated this claim in an interview with GB News.
As the BBC reports, this is not correct, and Labour has confirmed that Ms Reeves ‘misspoke’.
The £1,200 figure refers to an estimate from the Resolution Foundation think tank, which said following the Autumn Statement in November the combined effect of threshold freezes and cuts to NI insurance will result in ”a net personal tax rise of around £1,200 per household” by 2028/29, not this year, as Ms Reeves claimed.
Labour’s ad campaign also says under the changes workers “pay £10 more tax and get £2 off”.
This refers to Office for Budget Responsibility (OBR) analysis, which states that, in the long term, the two percentage point reduction in NICs (from 12% to 10%) “offsets just under a quarter of the post-pandemic personal tax rises that were announced between March 2021 and November 2022”.
The OBR states that the revenue set to be generated by the personal tax threshold freezes by 2028/29 “is broadly equivalent, in revenue terms, to a 10 percentage point increase in the main rate of Class 1 NICs”.
Economic claims made without appropriate context and caveats can cause confusion and damage public trust in both official information and politicians. MPs should present figures transparently and with all relevant context and caveats when a claim is first made, and quickly rectify oversights when they occur.
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