Britain’s poorest households will earn just 63 pence a month by undoing the increase in national insurance, a new study says – while those earning more than £100,000 will benefit the most.
Friday’s mini-Budget will deliver on Liz Truss’ campaign promise to nullify Boris Johnson’s tax hike designed to save the crisis-stricken NHS and adult social care.
But analysis by the respected Institute for Fiscal Studies (IFS) has underlined the extent to which the move will be an overwhelming boost to wealthier Britons.
The richest tenth of households, earning an average of £108,000, will save £1,800 on their annual tax bill, which is equivalent to £150 a month, the think tank says.
In stark contrast, the poorest 10 percent, three million people who earn an average of £12,000, will save just £7.66 – just 63p a month, or 14p a week.
Households with an average income of £31,400 in the UK save about £20 a month, while households with an income of £55,000 save about £58 a month, almost three times as much.
“Reversing the Recent NICs” [national insurance contributions] increase would benefit wealthier households more than poorer ones, even as part of their income,” said Tom Waters, senior research economist at the IFS.
Tony Wilson, director of the Institute for Employment Studies, said: The times the plans were a “tax giveaway for relatively high earners” and threatened to fuel inflation.
“The concern among Bank of England and Treasury officials will be that the move is more inflationary than a more targeted subsidy or tax cut,” he said.
The 1.25 percent increase in national insurance was only implemented in April when it was classed as a health and social care levy, but Ms Truss says cutting it could help the UK grow.
It is one of more than £30bn in measures that will benefit the wealthy, including abolishing the planned corporate tax hike from 19p to 25p next year.
Kwasi Kwarteng, the new chancellor, is also expected to lift the 2014 cap on banker bonuses, even if public sector workers are told to show wage moderation to keep inflation in check.
He could also accelerate Rishi Sunak’s plan to cut 1 pence from the basic income tax rate, to be introduced in 2024, in time for that year’s expected general election.
The chancellor is also expected to create 12 special investment zones that could reduce employer social insurance contributions for staff working in the zones.
The outbursts have sparked warnings that the Bank of England will raise interest rates further – to curb inflation – and could demand the new government tear up its fiscal rules.
They require debt to fall as a share of national income by 2024 and not loans for everyday expenses.