‘A lot of people will benefit’ National Insurance change explained – what it means for you

Keir Starmer grilled on National Insurance plans

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From July 6, the threshold at which National Insurance is taken will rise meaning workers get to keep more of their money. This decision came after the controversy about National Insurance rates being raised by 1.25 percentage points this April.

At a time where energy bills and essential items are rising in price, the threshold rise may be a lifeline for many families on low income as no National Insurance will have to be paid on income up to £12,570.

On The BBC Money Box podcast, presenter Paul Lewis discussed what the changes mean for those on low incomes with Lucy Frazer, the Financial Secretary to the Treasury.

He explained to her that it may seem like a tax cut for the average employee but in reality some people will pay higher National Insurance as rates rise.

Ms Frazer reassured him that “a lot of people will benefit from the rise”.

She explained that from Wednesday July 6, 30 million people in the UK will get a £6billion cut worth £330 a year.

She said: “Two million people will be taken out of tax all together and that’s a tax cut for 70 percent of workers.”

However Mr Lewis highlighted the AJ Bell research which found that workers may not be saving hundreds.

The financial services company worked out that for those earning £25,000 this tax year would save around £78 compared to before the National Insurance rates were raised, as well as the threshold.

Ms Frazer responded that there is still a lot of support available for families on low incomes.

She mentioned that the Government is giving £37billion worth of support away.

She said: “For example if you’re on means-tested benefits you’ll be getting £650.

“Pensioners and those in their household can get an extra £300 and if you get a disability living cost payment you can get £150.

“If you’re a family with an income of £26,000 or means tested benefits with two children, we estimate that by adding together all the benefits that we’ve put together, you will be getting £3,400 as a result of all the measures put together.”

The income threshold for paying the tax will rise from £9,880 to £12,570, meaning a lower proportion of people’s salaries will be subject to it.

Since the April hike, employees have paid 13.25 percent in contributions on any earnings between £9,880 and £50,000, and 3.25 percent on everything over £50,000.

In March this year, Britons with an annual salary of £30,000 would have paid £204.32 per month in National Insurance contributions.

Following the rise in April their payments would have increased to £222.16 a month.

However these will drop to £192.46 from July 6 according to figures from This is Money. This equals a 5.8 percent drop since the start of the year.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said: “Any tax cut is welcome right now, especially one that eases the pain for lower earners.

“They’ve faced the brunt of the rising cost of essentials because it makes up a bigger proportion of their spending, so they need all the help they can get.

“However, we’re not talking about vast sums of cash. £330 spread over 12 months is £27.50 a month.

“It’s a drop in the ocean compared to rising costs. So while it will help ease the pain slightly, those on lower incomes will still have a huge headache in making ends meet.”

The Money Box podcast is available on BBC Sounds.

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