Prime Minister’s claim about ‘tax cut’ for workers doesn’t account for threshold freezes

In an interview on BBC Radio Newcastle [2:21:30] this morning the Prime Minister claimed that “an average person in work is getting a tax cut of around £900”.

This figure refers specifically to savings from recently announced reductions to employee National Insurance contributions (NICs). On 6 April the main rate of NICs will be lowered from 10% to 8%, having been previously reduced from 12% to 10% in January.

£900 a year is the amount an employee on the average full-time salary (about £35,000) will save in NICs due to the combined four percentage point reduction.

But, as we’ve said before, Mr Sunak’s claim that workers are receiving a “tax cut of £900” misses important context. Ongoing freezes to the threshold at which people begin paying National Insurance contributions and income tax mean the savings for someone on the average salary are substantially smaller.

Once the impact of all tax changes are factored in, the Institute for Fiscal Studies says the average worker only stands to save £340 in 2024/25 while those earning less than £26,000 a year will actually be worse off. 

The IFS adds: “By 2027–28, after another three years of real-terms cuts to tax thresholds, the net effect of income tax and NICs changes since 2021 for the average full-time earner will be a tax cut of £140 per year”.