In an effort to boost support ahead of this year’s election, Jeremy Hunt has revealed plans to reduce tax payments by workers from April. The latest Budget saw the Chancellor cut National Insurance levels by a further 2p, following an identical reduction in January 2018. The move was designed to help stimulate the UK economy, as well as create a fairer tax system. Despite this, Labour have criticised the announcement, calling it a “con”, and stating many people will continue to remain worse off.
While Sir Keir Starmer has said that he supports the proposed cut in NI rates, he warns the measure will not offset tax threshold freezes, which will lead to some people paying more income tax over time. Sir Keir also notes that taxes have reached a 70-year high, with living standards taking an “unprecedented hit” in recent years.
Due to the Tories performing poorly in opinion polls ahead of the next general election, anticipated to occur later this year, there had been pressure on Jeremy Hunt to instigate personal tax cuts. However, the previous cut in National Insurance had not produced the much-needed boost to the polls, with initial speculation in the lead up to the Budget focusing on the possibility of income tax reduction having a greater political impact.
Mr Hunt said the planned change in NI will result in an annual saving of £450, for those earning an average salary of £35,000. In speaking to Chris Mason, the BBC’s political editor, Mr Hunt has shared his long-term aim of removing National Insurance altogether, but this can only occur when the cost is affordable. In an effort to raise revenue, the government intends to implement Labour policies, replacing the non-dom regime and increasing the windfall tax on oil and gas companies until 2029.
The Institute for Fiscal Studies believes the combined effects per April 2021 of cuts in NI and tax threshold freezes, means those earning between £26,000 and £60,000 will benefit. However, those earning less than £25,000 will incur greater losses, whilst those earning between £60,000 to £120,000 will see little change. The budget also confirms the Child Benefit threshold changes, stating consultations on moving to a new system that uses household rather than individual earning by April 2026 will occur. The current system is viewed as unfair as the threshold is mainly based on the highest-earning parent.
With a sluggish economy and a country entering its first recession since 2009, uncertainty remains regarding whether an Autumn or May election will occur. Some believe the economic picture will improve by November, leading to another opportunity to cut taxes. Budgetary proposals include the extension of household support funds in light of recent cost-of-living pressures, extending the freeze on alcohol duty and introducing a new vaping tax by October 2026. A new tobacco duty will also come in costing £2.00 per hundred cigarettes to ensure vaping remains cheaper. Fuel duty is to be frozen again, and tax breaks for holiday property owners are to be discontinued
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