The first thing to say is let’s not be too hard on Hunt. The country has an awfully big debt that needs paying down, giving him less wriggle room for tax cuts than he would like. Plus too much Treasury largesse risks triggering another inflationary surge. Let’s not be too easy on him, either, because he’s pulling a fast one.
Cutting 2p off National Insurance, rather then the penny most expected, will reduce it from 12p to 10p in the pound and make a genuine difference to incomes.
It will cut £148.60 off the tax bill of an employee earning £20,000, according to figures from AJ Bell, reducing it from £891.60 a year to £743.
Someone earning £30,000 will see their annual NI bill fall by an impressive £384.60, from £2,091.60 to £1,743.
A £50,000 earner will save £748.60, as their NI bill drops from £4,491.60 to £3,743.
Once earnings pass the 40 per cent higher rate tax threshold of £50,270, the saving flatlines at £754, because at that point NI falls to just 2p so today’s cut does not apply.
The NI cut for the self-employed will save two million around £350 a year on average (and make their tax admin a lot simpler, too).
These cuts also fits in nicely with Hunt’s mantra that he wants to make work pay. Although ironically, he spent the last year doing exactly the opposite.
Yet in practice all Hunt has done is return a small chunk of the tax the Treasury has been picking from our pockets in 2021, when then Chancellor Rishi Sunak froze income tax and NI thresholds all the way to 2028
That’s a particularly brutal stealth tax raid, because it means we pay more tax year after year as wages rise but thresholds stay the same – for six whole years.
The Institute for Fiscal Studies estimates this will drag 2.5 million more taxpayers brought into the higher and additional income tax bands by the 2027/28 financial year.
At the end of the process, it would have dragged the real value of the personal allowance all the way back to 2014 levels.
Hunt had a lucky break, too, because he introduced it a time when wages were snapping back from the pandemic. They climbed a beefy 8.5 percent in the last year.
By 2028, the stealth tax threshold squeeze will be generating revenues of a whopping £44.6billion a year.
Yesterday’s headline-grabbing NI cuts will cost the Treasury just £9.44billion a year. That’s barely a quarter of the amount it is making from its stealth tax bonanza.
Some may be surprised that Hunt chose to cut NI rather than income tax, which would have made for an even bigger headline. He didn’t do that by accident.
READ MORE: The eye-watering £44.6billion ‘stealth tax’ Jeremy Hunt kept quiet about
Income tax is charged on earnings from all sources, including pensions, savings and any income generated in retirement.
NI only affects those of working age. Pensioners see no benefit from the NI cut, as they don’t have to pay it.
Given the country’s disastrous finances, one tax cut is better than none at all, I suppose.
Unfortunately, the total tax burden is still on course to hit a post-war high of 38 percent, according to the Office for Budget Responsibility. That’s up from 33 percent before the pandemic, entirely on the Tory Party’s watch.
In another blow, the average household is paying nearly £500 a month more on household bills and food this year due to rampant inflation, Royal London figures show.
Hunt will make taxpayers feel a little richer from January. But only after making them much, much poorer overall.
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