Later this year, there will likely be a national election. On Wednesday, British Finance Minister Jeremy Hunt suggested a second tax cut of 10 billion pounds ($13 billion) for 27 million workers. This would be the first in less than four months.
Hunt said that the government will lower the rate of social security contributions (also called national insurance contributions) for workers and independent contractors by two percentage points. This is to get people back to work and build an economy based on high wages and skills.
He said that the cut, which starts in April, would be worth about 450 pounds ($572) a year for an employee and 350 pounds a year for someone who works for themselves.
Hunt said in his annual budget speech to parliament, “We need a simpler, fairer tax system that makes work pay.”
Hunt announced in November a reduction of 1 percentage point for independent contractors and 2 percentage points for employees in the main rate.
According to Hunt, the average worker would benefit by 900 pounds from the two tax cuts combined.
Employees making over 12,570 pounds will pay 8% of their taxable salary on earnings up to 50,270 pounds (compared to 12% previous year); self-employed individuals will pay 6% of their taxable income.
Instead of lowering income taxes, the government chose to reduce national insurance because it would encourage more individuals to work during a period when businesses are finding it difficult to fill positions.
However, the government once more declared that the wage levels at which workers must start paying NICs will remain frozen.
If the criteria are frozen instead of rising in line with inflation as is typically the case, more people will be forced to pay more into social security when their wages increase, which will increase government revenue.
The Conservative Party’s decision to freeze the thresholds for basic and other income tax rates is largely to blame for the fact that many Britons are paying more tax now than they were at the previous election, even with the announced drop.
The director of the think tank Institute for Fiscal Studies, Paul Johnson, stated that overall tax had “still risen a lot over this parliament” and that the reduction in national insurance will benefit lower earners more than the freezing of tax levels would.
