Rishi Sunak has today unveiled his Spring Statement, which included the announcement that from this July, people will be able to earn 12,570 pounds a year without paying a single penny of income tax or National Insurance. The Chancellor said: “From July, people will be able to earn £12,570 a year without paying any income tax or National Insurance. It’s a £6bn personal tax cut for 30 million people in the UK. It’s worth over £330 a year and is the largest increase in a basic rate threshold – ever.”
Mr Sunak said around 70% of workers would have their tax cut by more than the increase coming in April, as he promised further support in 2024 with a pledge to cut the basic rate of income tax from 20p in the pound to 19p – “a £5 billion tax cut for over 30 million people”.
The Government document outlining the full package today reads: “The annual National Insurance Primary Threshold and Lower Profits Limit, for employees and the self-employed respectively, will increase from £9,880 to £12,570 from July 2022.
“This increase will benefit almost 30 million people, with a typical employee saving over £330 in the year from July.”
But as the National Insurance rate rises, what does this really mean for you?
The income tax cut has been announced ahead of the increase in National Insurance (NI) contributions, which, despite pressures to scrap this due to the spiralling cost of living, will come into effect in April 2022.
However, as the threshold for paying NI will increase, lower earners will see a decrease in their tax rates in July 2022.
Money-Saving Expert founder Martin Lewis explained: “My rough mental calculation is that those who earn under c£39,000 will see no rise in NI (from July) and most see a cut.
“Those who earn over that amount will see a rise (This is from combining new 1.25% point higher rate, with the £3,000 starting threshold).”
He later tweeted: “Apparently the Institute of Fiscal studies has done the numbers in detail and they put the break even around £35,000 – so my rough calculation was a little high.”
How much are National Insurance rates due to rise?
NI rates are due to rise by 1.25 percent from April 6, 2022, to April 5, 2023..
This raises your contribution from 12 percent of weekly earnings to 13.25 percent.