Jeremy Hunt's 2p NI budget cut – even this ferret pulled from a box labelled ‘rabbit’ is welcome

5 March 2024, 16:51

• Sarah is the Head of Personal Finance at Hargreaves Lansdown

By Sarah Coles

@sarahecoles

After months of speculation, it seems Jeremy Hunt’s tax cut bonanza in the Budget will take the form of a 2p National Insurance cut.

It’s not so much a rabbit pulled out of a hat as a slightly tatty-looking ferret dragged from a box, labelled ‘rabbit’.

It’s better than nothing, but it’s a scaled-down, less attractive option than the income tax cut that has been discussed for well over a year. Hunt just has to hope it doesn’t bite.

This cut is still very welcome. The more you earn, the more you save, so someone on a salary of £30,000 would save £349 a year, someone making £40,000 would save £549, someone on £50,000 saves £749, and anyone making over the higher rate tax threshold saves £754.

These kinds of figures are not to be sniffed at, particularly for anyone being squeezed by higher mortgage payments or facing the multitude of price rises coming in Awful April.

However, by picking the cheaper option of cutting National Insurance instead of income tax, it means millions of people will get no benefit at all from the change – including people over state pension age, who don’t pay NI.

It also means the centerpiece of Hunt’s Budget may well be exactly the same tax cut that saved someone on £30,000 a grand total of £29 in January.

Our HL Savings & Resilience Barometer shows that since the start of the cost-of-living crisis, the cost of food and non-alcoholic drink is up almost 24%, so £29 is a drop in the ocean.

Unfortunately, even this tax cut isn’t as good as it may sound, because it comes at the same time as yet another freeze in the personal allowance and the higher rate tax threshold, which the OBR says will see 1.1 million more people dragged into paying income tax and 800,000 more forced to pay higher rate tax.

This means we can’t look at a National Insurance saving in isolation. We’re still locked into a threshold freeze that means over time we’re going to see our tax bills continue to rise.

This cut will simply be a brief blip in an inexorably rising trend.

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