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Spring Statement 2022: National insurance tax cuts to save workers £330/year from July – plus everything else from today's announcement

Spring Statement 2022: National insurance tax cuts to save workers £330/year from July – plus everything else from today's announcement
Helen Knapman
Helen Knapman | Assistant Editor – News & Investigations and Emily White | News Reporter and Sophie King | News Reporter and James Flanders | News Reporter
23 March 2022

Chancellor Rishi Sunak has announced sweeping changes to national insurance contributions (NICs) that will see a typical employee saving over £330 a year from 6 July 2022. The change comes as part of today's Spring Statement, with other key announcements, which we will round up below, including the basic rate of tax being cut by 1 percentage point from April 2024 and fuel duty rates being cut by 5p/litre.

See the video below from MoneySavingExpert.com founder Martin Lewis, who gives his instant reaction to the Spring Statement:

Martin Lewis gives his instant response to the Spring Statement and outlines what it means for you
Embedded YouTube Video

NICs to be cut from July

Under the shake-up to NICs, the threshold at which workers start to pay national insurance from will rise to £12,570 on 6 July 2022. The current rate at which national insurance is due is £9,568, rising to £9,880 at the start of the 2022/23 financial year on 6 April 2022.

The increase in the threshold equates to a tax saving of over £330 for a "typical employee" and will benefit almost 30 million working people, according to HM Treasury. It says 70% of those who pay NICs will pay less of it from 6 July 2022, while 2.2 million people will be taken out of paying NICs altogether. 

But planned increases to NIC rates, announced last September, will continue as planned from 6 April 2022. Rates will rise by 1.25 percentage points. You can also see our Tax rates 2021/22 guide for a full breakdown of how national insurance works and how much you may pay currently.

How NIC payment thresholds are set to change

NIC payment thresholds

Date thresholds will change National insurance threshold (i)
6 April 2021 to 5 April 2022 
 £9,568
6 April 2022 £9,880
6 July 2022 £12,570

(i) For class 1 and class 4 NICs.

If you earn under £35,000, you'll pay less national insurance from July

Under the shake-up, most will pay less national insurance from 6 July 2022 when compared with the current financial year, 2021/22. The table below details how this will affect those on the following example salaries.

How much more or less you'll pay in NICs

Salary How much more or less you'll pay in NICs in a year from 6 July 2022 compared with 2021/22 (i)
£20,000 -£178
£30,000 -£53
£40,000 +£71
£50,000 +£196
£80,000 +£570

(i) Assumes thresholds will remain the same in the 2023/24 financial year.

  • Workers on universal credit are likely to see a smaller gain

    For workers on universal credit earning above £9,880 a year, the higher national insurance threshold will have a dual impact: it'll reduce the national insurance you pay BUT it will also reduce the amount of universal credit you can get.

    This is because your income from working cuts into how much universal credit you receive. Currently, for every £1 you earn – after national insurance, tax and pension contributions are taken off – your universal credit payment is reduced by 55p.

    Unfortunately, there's nothing you can do to mitigate this. But if you're struggling and not currently getting any benefits, it's worth using our Benefits checker to see what you might be entitled to.

  • How the shake-up affects state pension payments and benefits entitlement

    Paying national insurance builds up your entitlement to certain benefits, such as the state pension. If you don't earn enough to pay national insurance, however, you can still get credits towards the state pension if you earn over a certain amount. (You can also get credits if you're not working, for example, if you're a carer or you're on certain benefits.) It works differently depending on whether you're an employee or self-employed:

    • For employees, there's no change to this 'lower earnings limit', which is the point at which people gain a national insurance credit. From 6 April 2022, employees earning above £6,396 will qualify for a credit and they'll pay national insurance at 13.25% on earnings from £9,880. Then from 6 July 2022, employees earning from £6,396 will continue to qualify for a credit, while national insurance at 13.25% will be due on earnings from £12,570.

    • For the self-employed, it's different. Currently, those earning between £6,515 and £9,568 (between the 'small-profits threshold' and the 'lower profits limit') can gain entitlement to credits from the small-profits threshold. National insurance is due at a flat rate of £3.05 a week from £6,515, while any earnings above £9,568 are also subject to 9% national insurance.

      From 6 April 2022, the weekly flat-rate contribution is being scrapped for those earning between the small profits threshold and the lower profits limit – though you'll still earn credits from the increased small-profits threshold of £6,725. Instead the weekly flat-rate contribution, which will rise to £3.15, will be due from the increased lower profits limit of £11,908. National insurance at an increased rate of 10.25% will also be due from this point.

      Why don't self-employed people have a £12,570 threshold for national insurance like employees? Well, they are benefiting from a higher threshold from April 2022, three months earlier than employees. So the Government has recalculated the lower profits limit to reflect that.

Basic rate of income tax to be cut from April 2024

Workers will see the basic rate of income tax in England, Northern Ireland and Wales fall by 1 percentage point from 20% to 19% from April 2024. This tax rate is currently paid on earnings between £12,571 and £50,270 a year (or across your entire earnings on a second job if you have one). The shake-up means someone earning £25,000 a year will pay roughly £125 a year less in income tax, for example.

The Treasury has confirmed there is no change to the 40% and 45% income tax rate for higher earners.

Income tax thresholds – the rate at which you start paying income tax – are currently frozen until 2026, as announced in the Budget 2021.

In Scotland, income tax rates are set by the devolved Scottish Government. It's told us it has no plans to change rates at present and a budget isn't due until the second half of the year. Currently, the lowest rate of tax in Scotland is set at 19%, though this is due on earnings between £12,571 to £14,667, while its basic rate tax of 20% is due on £14,668 to £25,296.

  • How the shake-up affects tax relief on pension contributions

    Tax relief will fall. When you pay into your pension, some of the money that would have gone to the Government as tax goes towards your pension instead. This helps reduce the amount of tax you pay and helps bolster your savings for the future. Tax relief is given based on the rate of income tax you pay.

    With the threshold for the basic rate of income tax dropping from 20% to 19% from April 2024, pension holders will get less tax relief as a result. The table below shows how much or less people will get depending on the example annual salaries we've highlighted (when making the Government's minimum 5% employee contribution to a workplace pension scheme under auto-enrolment).
     

    Salary

    Employee

    contribution

    20% tax relief (April 2023-April 2024)

    19% tax relief (From April 2024)

    How much less you'll get in tax relief

    £20,000

    5%

    £200

    £190

    £10

    £30,000

    5%

    £300

    £285

    £15

    £40,000

    5%

    £400

    £380.

    £20

    £50,000

    5%

    £500

    £475

    £25

    Data compiled by Hargreaves Lansdown.

Fuel duty to drop by 5p a litre

A temporary UK-wide 12-month cut to duty on petrol and diesel of 5p a litre was also announced. This will come into force from 6pm on Wednesday 23 March and is the "biggest cut ever" on all fuel duty rates, according to the Treasury.

Fuel duty had been frozen for the 12th year in a row at 57.95p a litre in the Autumn Budget 2021.

The announcement comes as the cost of fuel has soared to record highs, with average petrol prices now at 167.30p a litre and diesel at 179.72p a litre, according to motoring group the RAC. Fuel duty is included in the price of petrol and diesel. For help on cutting fuel costs, see our Cheap petrol and diesel guide.

Other key Spring Statement announcements

As well as the three key announcements detailed above, a number of other measures were also announced, including the following:

  • Homeowners will pay zero VAT on the installation of energy saving products, such as solar panels and heat pumps. Despite predictions, no further measures were introduced to help households with the rapidly rising cost of energy bills. Instead, the Government announced it will cut VAT on household energy efficiency materials from 5% to 0% for five years. The Chancellor said the average tax saving for those having a solar panel installed would be about £1,000, plus a £300 a year reduction in energy bills – but you still need to be able to afford the upfront cost, which is about £4,800 for solar panels.
  • An additional £500 million will be put into the 'Household Support Fund' from April. This is on top of the £500 million given to set up the scheme in October 2021 – though this must be spent by 31 March 2022 as it won't be rolled over. We've asked how the latest £500 million will be split among the devolved nations and we'll update this story when we know more. Last year, £41 million was given to the Scottish Government, £25 million to the Welsh Government and £14 million to the Northern Irish Executive.

    The funding is allocated on a case-by-case basis and is designed to help vulnerable households with the cost of essentials, such as food, clothing and utilities – though there isn't currently any set criteria to follow and it's down to councils to determine.

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