The National Insurance increase that came into effect in April will be reversed in November, Chancellor Kwasi Kwarteng confirms.
The 1.25% point rise in National Insurance, bringing the rate up to 13.25%, was introduced when Rishi Sunak was chancellor as part of a plan to raise funds for the NHS and social care. The change was due to raise an extra £12bn a year.
Now, that changed will be reversed earlier than planned, with the rate moving back down to 12% from November 6. The announcement comes ahead of the new chancellor's mini-budget which is due to take place tomorrow (Friday 23 September).
The chancellor has described the plan as "a tax cut for workers" and a No 10 spokeswoman said the decision was part of the Government’s commitment to “a low tax, high growth” economy.
Mr Kwarteng said: "I can confirm that this year’s 1.25% point rise in National Insurance will be reversed on 6th November. Its replacement – the Health and Social Care Levy planned for April 23 – will be cancelled.
“A tax cut for workers. More cash for businesses to invest, employ and grow. Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
This comes after the Institute for Fiscal Studies (IFS) has warned most people will be worse off in real terms this year despite the massive package of Government support to deal with the cost-of-living crisis. IFS researcher Xiaowei Xu said soaring inflation meant people across the income spectrum will see a hit to their living standards.
“In real terms we expect the median earner to be £500 worse off than they were last year, which is around a 3% net cut in their income,” she said.
“High earners – but not very higher earners – will be more than £1,000 worse off which would be a larger increase in percentage terms. Lower earners and those out of work will be more shielded from the rising cost of living, both in cash terms and as a share of income.
“Even after the Government is spending vast amounts of money to protect households from the rising cost of living, most households would still see their living standards fall this year compared to last year.”
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