Key measures announced by Hunt in yesterday’s (6 March) Budget include a further cut to employees’ national insurance contributions (NICs) from 10% to 8%, which will take effect from 6 April; a corresponding cut to self-employed NICs; a continued freeze on fuel duty; and a rise in the Child Benefit ceiling to £60,000.
With the national insurance cut taking up £10 billion of the claimed £20 billions’ worth of tax cuts, it has attracted much of the attention. The average worker, on £35,400 annually, will receive around £450 each year on top of the 2p NIC cut from January announced in 2023’s Autumn Statement.
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Added together, the cut provides a maximum boost of around £75 each month; a welcome boost but hardly striking at the heart of the UK’s economic issues, according to Ben Willmott, head of public policy at the CIPD.
He said: “The national insurance cut will be welcomed by many workers but it’s highly optimistic to suggest that this move alone will get the equivalent of 200,000 more people into full time work and solve for one in five vacancies.
“The factors affect UK labour market participation are much more complex. For instance, there was nothing in the Budget to reduce rising levels of economic inactivity due to ill health.
“Health policy is economic policy and requires more ambition from government and significant changes such as improving employer access to occupational health services and reforms to statutory sick pay.
“There was also very little to address skills and tackle the hard-to-fill vacancies facing many employers. We urgently need the government to heed the long-standing calls of employers and business groups and reform the apprenticeship levy to reverse the collapse in the use of apprenticeships in SMEs and among young people since 2017.
“This vital reset would help boost training and development in all its forms and ensure that more apprenticeship opportunities go to the group that most need and benefit from them: young people.”
And while the NIC cut for employees may help ease workers’ difficulties in the ongoing cost of living crisis, the chancellor has chosen once again not to raise the UK’s tax bands, resulting in an effect called ‘fiscal drag.’
“Understandably, not many people are familiar with fiscal drag," Lee McIntyre-Hamilton, employment tax specialist at Keystone Law, told HR magazine.
The phenomenon, he explained, happens when tax brackets remain frozen at the same level for long periods of time.
When this happens, even if employees’ pay rises with inflation, they can end up taking home less money after being pushed into higher tax brackets.
He added: “Moreover, the effect of fiscal drag becomes greater over time as wages continue to rise and thresholds remain frozen, progressively eroding the benefit of any rate cut.”
For employers, this means that payroll costs can increase substantially without employees seeing the benefit.
“Currently, PAYE and NIC thresholds are frozen until 5 April 2028. So, four more years of net salary erosion for employees and increasing employment costs for employers.”
Neil Armstrong, tax director at accountants Baker Tilly Mooney Moore, described the budget as "bland and beige," summarising: "The chancellor has played it safe, and limited himself to minimalistic tax cuts on the individual, rather than employers and businesses."
