Spring Statement swings and roundabouts will leave taxpayers dizzy

The Chancellor announced that, from July 2022, the national insurance annual primary threshold and lower profits limit would be increased to the equivalent of the income tax personal allowance of £12,570¹. The Chancellor also announced that, from April 2024, the basic rate of income tax would be reduced to 19%².

These announcements come on top of the already planned increase in the national insurance rate next month and ongoing real terms cuts in the income tax personal allowance as it remains frozen for five years.

John Cullinane, Director of Public Policy at the CIOT said:

“We welcome the alignment of the income tax and national insurance thresholds. Not only will this represent a welcome boost for those on lower incomes, it also brings some much-needed simplification to the tax system.

“However, it does appear to illustrate different approaches to each of those taxes. On income tax, the personal allowance has been frozen at its current level until April 2026, a real-terms cut when the cost of living is factored in. Similarly, the rate of tax is also being cut.

“In contrast, the national insurance threshold is being increased significantly. But prior to that, the rate is also increasing by 1.25%, to fund expenditure on the NHS, health and social care in the UK. So, for income tax on the one hand, thresholds and rates are reducing, but for national insurance on the other they are increasing. The approach on national insurance seems the most progressive, taking the lowest paid out of the levy, whereas on income tax even high earners will benefit from the reduction in the basic rate.”

In April 2023, the 1.25% increase in national insurance will be replaced by the health and social care levy, chargeable at the same rate.

John Cullinane continued:

“Keeping up with all these swings and roundabouts will make most ordinary taxpayers dizzy. We presume the national insurance threshold will similarly freeze until 2026, providing some long-term stability. While the health and social care levy will be introduced next April, it simply substitutes for the increase in national insurance so, at least for most individuals, there will be no difference in cash terms.”

Notes for editors

1. From April to June, an employee with earnings over £248pw will have less take home pay (after deduction of income tax and national insurance) than in 2021/22. From July 2022, the alignment of the NIC thresholds with the income tax personal allowance will mean that an employee with earnings under £797pw will have greater take home pay than in 2021/22.
2. The reduction in the income tax rate from 20% to 19% from 2024 is set to benefit all taxpayers, including those with rental or pension income. In contrast the 1.25% increase in National Insurance (which is due to become the Health and Social Care Levy from April 2023) is only paid by those in employment (whether employed, self-employed or a partner) and by employers. This further distorts the total taxes paid on employment income when compared to other income such as rental profits or pensions.