As of last Wednesday, 2.2 million workers no longer have to pay national insurance (NI), as the threshold rises from £9,880 to £12,570. As well as those 2.2 million, the tax cut will help a further 30 million workers pocket more take-home pay.
This tax cut is somewhat uncharacteristic from a government that hiked NI by 1.25 percentage points and froze income tax thresholds – hitting ordinary folk facing the worst cost of living crisis for a generation.
Matching the NI threshold to income tax is something that we at the TaxPayers’ Alliance have been calling for since 2012, and again in 2020. The threshold rise will see taxpayers keep more of their own money, with the average worker on £30,000 being £53 better off this year.
This may be good news for the taxpayer, but there is more room for the government to be bold. Our dynamic tax model shows that radical tax cuts would further support families and help the British economy weather the cost of living storm.
A smorgasbord of tax cuts, including reducing VAT to 17.5 per cent, cutting income tax by 2p and maintaining the raised NI threshold, would increase wages by £13 a week for the average worker over the next ten years. The impact on growth (another £56 billion) and investment into the economy (an extra £12 billion) would be welcome too.
But it’s important to remember these benefits would all be hindered if April’s NI rise isn’t reversed. For example, cutting VAT to 17.5 per cent could increase GDP by £30 billion. Without the reversal of the health and social care levy, GDP would only increase by £3 billion. That’s the impact Tory tax rises on job creation will have – damaging productivity and, ultimately, the economy as a whole.
But the threshold increase has shown that the government is willing to remove some of the heavy financial burden that hard working Brits are having to endure. If the chancellor or even the new prime minister – whoever that may be – wants to go for growth and help households, they should be bold and let taxpayers keep more of their hard earned cash.