The amount you can earn before you have to pay National Insurance (NI) has been increased from today, a move Boris Johnson has called the “biggest tax cut in a decade” to help with the rising cost of living.
The Government says 30million people will benefit a total of £6billion from the move in the threshold, which has risen from £9,880 to £12,570.
A typical worker would save £330 over 12 months and save a total of 2.2 million people from paying NI contributions.
The prime minister announced this to his cabinet on Tuesday – just a few hours before Shock resignations of Sajid Javid and Chancellor Rishi Sunak – that the measure was part of a £37 billion support package The government had set up to help families cope with the rising tide of daily expenses from fuel and groceries to household energy.
How does the NI change affect you?
The rate of inflation has reached levels not seen in 40 years – and will rise further later this year when the energy price cap is raised again, potentially adding £1,000 to the average annual bill.
The move in the NI threshold follows a controversial 1.25 percentage point rise in the NI in April.
This was brought in by Rishi Sunak to fund investments in health and social care, despite strong pressure to delay the migration.
Personal finance experts say a £27.50-a-month increase in the average wage package will do little to compensate workers as wages rise well below the 9% inflation rate.
Commentators have also recently highlighted how the income tax thresholds frozen until 2026 are pushing more people to pay higher tax bills.
Figures released last week by HM Revenue and Customs showed almost two million higher and additional taxpayers were created in three years.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Unfortunately, the tax burden will increase over time.
“The frozen tax thresholds until 2026 mean that as wages gradually increase, the tax officer will take more and more of your money.”
Ms Coles added: “Any savings are welcome at the moment but it will be a drop in the ocean.
“Someone who pays £10 or £20 less in tax every month won’t notice when they factor in the rising costs of everything from energy to food to fuel.”
Further support for households is on the horizon.
More than eight million households will start seeing living expenses in their bank accounts next week, with a first installment of £326 being paid to all low-income households from July 14.
The second tranche of the £650 payment is due to follow in the autumn, while pensioners and disability benefit recipients will also receive support.
From October, all households will have £400 taken off their energy bills – in the form of a grant rather than a loan – regardless of what they earn.