The Chancellor has confirmed that he will cut national insurance by 1.25% for employees and employers from 6 November
Scrapping the rise will reduce tax for 920,000 businesses by nearly £10,000 on average next year as they will no longer pay a higher level of employer National Insurance and can now invest the money as they choose, Chancellor Kwasi Kwarteng said.
With plans for a fiscal statement announcement on Friday 23 September, the Treasury has confuirmed that the national insurance cut will go ahead, effectively abolishing the Health and Social Care Levy introduced by former Chancellor Rishi Sunak.
The NI cut will help almost 28 million people across the UK, worth an extra £330 on average in 2023-24, with an additional saving of around £135 on average this year due to the increase in the national insurance threshold which came into effect in July and is not being reversed.
The Health and Social Care Levy (Repeal) Bill, legislating for the tax change, has been introduced into the House today.
As part of the cancellation of the Levy, The Chancellor is also set to confirm that the increases to dividend tax rates will be scrapped from April 2023 in his growth plan tomorrow. Those who pay tax on dividends will save an average of £345 next year. The increased dividend tax was introduced in April 2022 to ensure those who gained income from dividends contributed the same amount to help fund health and social care.
The levy was expected to raise around £13bn a year to fund health and social care. The Chancellor confirmed that the funding for health and social care services will be maintained at the same level as if the levy was in place, protecting the NHS through the winter and ensuring long-term investment in social care.
Kwarteng said: ‘Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
‘Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn.’
The Treasury said that 920,000 businesses will see a cut in National Insurance bills, with 20,000 taken out of paying National Insurance entirely due to the employment allowance, which rose in April 2022 from £4,000 to £5,000.
In particular, many small and medium businesses (SMEs), which employ over 13m people in the UK, will see a cut to their National Insurance bills. Next year this will be worth £4,200 on average for small businesses and £21,700 for medium sized firms. In total 905,000 micro, small and medium businesses will benefit from 2023-24.
The Chancellor is committed to reducing debt-to-GDP ratio over the medium term and boosting growth, which will help fund public services.