From July this year, national insurance will be payable from an income of £12,570 a year, same as income tax. This is an increase of £2,690 in cash terms, and is worth £330 for the average employee in the year.
Sunak said the cut amounts to a £6bn personal tax cut for 30mn people across the UK, and he quoted the IFS, saying it was the “largest single personal tax cut in a decade”.
The industry has welcomed the move as a way to cut the cost on consumers.
Les Cameron, saving expert at M&G Wealth, says: “The national insurance hike was widely criticised as it would have a disproportionate effect on lower earners.
"The chancellor has more than made up for the hike in rates with the increased threshold – seeing most low and middle earners having an effective tax cut – meaning more money for those struggling with the cost of living crisis.”
Tim Walford-Fitzgerald, partner at accountancy HW Fisher, suggests there could be further alignment with income tax down the line.
He says: “The decision to raise the threshold people earn before they pay national insurance is a long overdue simplification and will make it easier for the chancellor to take the next step in aligning income tax and national insurance contributions.
"Expect a further change on this when the chancellor has the political courage to do so."
The chancellor also published a tax plan, pledging to reform the 1,000 tax reliefs and allowances in the system.
Cameron says: “In the investment world there is a starting rate for savings, personal savings allowances and dividend allowances, all of which make tax more complicated than necessary. It will be interesting to see where any reform may lie.”
Pensions
But Steven Cameron, pensions director at Aegon, has warned of the long-term ramification the national insurance change could have for pensions.
He says: “Setting aside the 1.25 per cent increase, which will be ring-fenced to pay for social care and NHS support, raising the threshold will reduce the amount being collected in national insurance from today’s workers to pay for today’s state pensions.
"This will happen not just in the coming year but also in all future years, storing up longer-term challenges for the funding of state pensions which are paid for out of national insurance on a pay-as-you-go basis."
