Today marks an important milestone for 27 million workers in the United Kingdom as the second National Insurance reduction of the year comes into effect, providing an additional £900 to their bank accounts. This reduction, initially announced by Chancellor Jeremy Hunt in the Spring Budget, sees the main rate of primary Class 1 NI decrease from 10 percent to eight percent, equating to a saving of 2p for every £1 of earnings. This reduction follows the previous 2p cut announced in the Autumn Statement last November, which came into effect in January.
By combining these two reductions, individuals earning a £35,000 salary will save nearly £900 annually, resulting in an extra £17.21 in their pockets weekly. Even individuals with higher earnings will experience substantial savings, with those earning a £50,000 salary retaining a total of £1,497.20 in the 2024-25 tax year, according to calculations by wealth manager Quilter. Self-employed workers will also benefit from saving almost £700.
Regrettably, pensioners will not experience the advantages of this NI cut but will receive positive news with the announcement on Monday of a significant increase in the state pension by an inflation-busting 8.5 percent, resulting in an additional £901 annually. This follows last year’s 10.1 percent growth in state pension, marking the second consecutive year of substantial growth.
Furthermore, there are signs that the cost-of-living crisis is easing, as shop price inflation fell to just 1.3 percent in March, with food price inflation dropping to 3.7 percent from 19.1 percent last year. In addition, Ofgem has reduced its energy price cap by 12 percent from April 1, potentially saving the average household £238 annually on gas and electricity.
Despite these positive developments, there remain concerns about the overall tax burden being at a 70-year high, and the decision to freeze income tax and NI thresholds until 2028 could result in millions of individuals being pushed into higher tax bands as their earnings increase. It is estimated that around 1.6 million pensioners will be liable to pay taxes in retirement for the first time over the next four years as a result of the freeze.
While the NI cut and state pension increase are positive strides in the right direction, it is evident that the crisis is not yet resolved. The hope is that more positive changes will follow to further enhance the financial well-being of individuals in the United Kingdom.