Is the National Insurance ‘cut’ good for workers? The answer may surprise you.
The eye-catching 2 percentage point National Insurance cut for employees has taken the headlines by storm. But what does it really mean for the country’s average worker?
The mini-budget of September 2022 may feel like it was decades away, but the debacle was fresh in the minds of political and financial commentators after the Autumn Statement yesterday (November 22) and for obvious reasons.
Fortunately, chancellor Jeremy Hunt managed not to damage trust in UK Plc, though many of the most egregious policy quandaries remain in place.
There’s no shortage of common-sense changes to be made to the tax system: student loan interest rates, inheritance tax reform, the high income child benefit charge, the VAT tax cliff, and the 60 per cent tax trap are some of the better-known issues.
Alongside this are other matters, such as the Lifetime Isa withdrawal penalty and inequitable taxpayer-funded childcare policies.
Many analysts have long argued that amendments could be made with minimal economic disruption, while also bringing back a sense of equilibrium to a clearly unbalanced system.
But never mind.
Instead, the chancellor has elected to cut National Insurance for both employees and the self-employed — though it’s worth noting that limited company directors who enjoyed the least support during the pandemic, have once again been mostly forgotten in the tax-cutting bonanza.
Notably, this National Insurance cut will be introduced on 6 January through emergency legislation, rather than waiting for the far more sensible 6 April (the start of the new tax year). Pundits think this could signify a May election; enough time to see an improvement in your clients' pockets.
Macroeconomic implications
Should Labour take power — the most likely result according to almost every reputable pollster — these tax changes could well be reversed, amended, or otherwise altered in short order.
But a new government is unlikely to wish to spend voter goodwill on reversing a tax cut immediately after they have got used to the extra cash. Therefore, it’s worth considering the medium-term implications, both on the macroeconomic and personal finance fronts.
To start with, major changes in fiscal policy are usually met with an equal and opposite reaction at Threadneedle Street. For context, Bank of England governor Andrew Bailey warned the Treasury Committee on Tuesday (November 21) that market traders are ‘underestimating’ the threat of stubborn inflation.
The CPI rate is currently at 4.6 per cent, and while down drastically over the past year, it remains more than double the official 2 per cent target. But has fiscal policy really loosened? No; but the Conservative Party wants you to think so.
