A 1.25% increase in social security introduced in April will be reversed from November 6, the Chancellor has announced.
Before handing in his ‘mini-budget’, Kwasi Kwarteng claimed the change would save almost 28 million people an average of £330 a year, the BBC found.
A Treasury press release said that “the abolition of the increase will cut taxes by an average of almost £10,000 next year for 920,000 companies as they no longer pay higher employer social security and can now invest the money as they please”.
Social Security (NI) is a tax paid by employees, employers and the self-employed. A hike was introduced in April under former Chancellor Rishi Sunak, but new Prime Minister Liz Truss vowed to reverse it. Now Kwarteng has kept this promise.
what it means to you
Employees currently pay 13.25% on earnings between £12,570 and £52,270 and 3.25% on earnings above that. Employers pay 15.05% on an employee’s income.
Self-employed people pay £3.15 a week if their profit is over £6,725, then 10.25% on profits between £11,908 and £50,270 and 3.25% on profits above that.
Kwarteng’s plan means employees pay 12% and 2% and employers 13.8%. Meanwhile, according to The Money Edit, self-employed people will pay a “mixed” rate to reflect changes throughout the year when they submit their self-assessment statement in January.
The more you earn, the more you benefit from this change, the BBC said. “For example, someone earning £20,000 saves around £93 a year and someone earning £100,000 saves £1,093 compared to now,” it says.
The UK’s poorest households will gain just 63p a month from the reversal of the NI increase, according to a study by the Institute for Fiscal Studies, while people earning more than £100,000 will benefit the most.
How was the reaction?
Reversing NI growth and other measures will “disproportionately benefit the wealthy and provide no answers to the cost-of-living scandal,” wrote Miatta Fahnbulleh, executive director of the New Economics Foundation, for The Guardian. Along with “a series of tax cuts,” the measures “are failing to help the people who need them most and depriving our rasping public services of the investment they desperately need,” she said.
In response to the mini-budget, Labour’s shadow chancellor Rachel Reeves accused Kwarteng of not having a credible growth plan, claiming the set of measures announced in his so-called mini-budget was based on an “outdated ideology”.
She told MPs: “This plan will result in keeping corporate tax where it is today and bringing social security contributions back to where they were in March. Some new plan.
“It’s all based on an outdated ideology that says if we simply reward those who are already wealthy, society as a whole will benefit,” she continued, claiming that the Conservative Party “decided to keep leveling through.” to replace the subsidence”.
Analysis from the Dissolution Foundation found that almost half of the gains from the tax cuts announced today, including the removal of the 45p income tax rate and the reversal of the NI hike, would “go to the richest 5% alone, who would be £8,560 better off” . It found that “only 12% of profits will go to the poorest half of households, who will be on average £230 better off next year”.
However, some business leaders welcomed the reversal. Kitty Ussher, chief economist at the industry body Institute of Directors, told the BBC that raising employers’ pension contributions was “a mistake”.
“It was quite simply a tax on jobs that companies had to pay, regardless of whether they were profitable,” Ussher told the broadcaster. “Many of our members told us that the increase meant they had no choice but to push prices up, which would make inflation worse.
“Others said the increase in the cost of hiring employees meant they would think twice about hiring new employees or possibly make the difficult decision of firing colleagues,” she added.