Chancellor Jeremy Hunt began easing the tax burden but it will still hit a record high as national insurance in a giveaway worth £10 billion a year, but millions of workers will face a squeeze on their finances with the tax burden still set to reach a record high.
According to British media reports, the Chancellor said the two percentage point reduction in the main rate of employees’ national insurance (NI) will save someone earning £35,000 more than £450 and the change would benefit 27 million people.
With a general election expected next year, the tax cut will be rushed through Parliament to take effect in January to boost Rishi Sunak’s chances at the ballot box.
But the continuing freeze in personal tax thresholds will wipe out the benefit for many workers, as higher earnings see millions dragged into paying more to the Exchequer.
The Chancellor also confirmed that a tax break allowing firms to cut their bills if they invest in new equipment will be made permanent, in what he claimed was the “biggest business tax cut in modern history”.
Autumn Statement
The changes in the autumn statement reduce the tax burden by 0.7 percentage points compared with forecasts in March, but it still rises to a record post-war high of 37.7% of GDP by 2028-29.
And high inflation has also contributed to a situation where the independent budget watchdog warned that “living standards are forecast to be 3.5% lower in 2024-25 than pre-pandemic”.
“This would be the largest reduction in living standards since records began in the 1950s, but only half the fall we expected in March,” the Office for Budget Responsibility (OBR) said.
Mr. Hunt said high employment taxes “disincentivise the hard work we should be encouraging” as he cut the 12% national insurance rate on earnings between £12,570 and £50,270 to 10%.
“If we want people to get up early in the morning, if we want people to work nights, if we want an economy where people go the extra mile and work hard, then we need to recognise that their hard work benefits all of us,” the Chancellor said.
He said the change means a saving of over £520 for the average nurse and £630 for the typical police officer.
The Chancellor has added £4 billion a year in cash terms to departmental spending. But higher inflation reduces the real spending power of these plans by £19 billion compared to our March forecast.#AutumnStatement pic.twitter.com/f7NxHTsG3L
— Office for Budget Responsibility (@OBR_UK) November 22, 2023
He also cut national insurance by an average of £350 a year for around two million self-employed people from April.
Pre-election bribe?
Allies of Hunt insisted the tax-cutting plan was not a pre-election bribe but its timing is not being viewed as a coincidence in Westminster.
Westminster watchers saw the decision to bring forward the cut to the main rate of employees’ NI from April to January as a possible signal that an election could be called in early 2024.
But the Chancellor told Sky News he had not spoken to the Prime Minister about the prospect of a May election., as reported by The Independent.
Hunt told the broadcaster he would look to cut income tax at the spring budget “if it is responsible to do so” and that he had “never pretended” that he could lower the tax burden “in one go” — a potential hint at a further pre-election giveaway.“Despite an increase of £4.1 billion a year on average in this autumn statement, higher inflation means the real value of departmental spending is £19.1 billion lower by 2027-28 than our March forecast,” the OBR said.
