Average worker to save £447 from 2p National Insurance cut from tomorrow 

This Saturday 6 January marks the day the Chancellor’s 2p cut to National Insurance (NI) contributions comes into effect for eligible UK workers.

As announced at the recent Autumn Statement, this cut will see the main rate of primary Class 1 NI contributions fall from 12 per cent to 10 per cent.

NI contributions are mandatory for those age 16 or over who are either an employee earning more than £242 a week from one job or are self-employed and making a profit of over £12,570 a year.

These contributions enable workers to qualify for certain benefits, including the State Pension and are a cornerstone of funding for crucial public services like the NHS.

Quilter’s calculations show the Chancellor’s 2p NI reduction will save the average UK worker* £447.86 over the year, or £8.61 per week.

Average savings for National Insurance cut:

On the face of it, this seems a relatively generous cut that will help put more money back in people’s pockets.

However, previous analysis from Quilter revealed that despite the NI cut, UK workers are just £2.68 a week better off than they would have been had tax thresholds not been frozen.

A worker on the average salary of £34,963* will take home an extra £8.61 a week due to the NI cut, but due to frozen tax bands and fiscal drag the real benefit is significantly smaller.

Had frozen income tax bands increased by just 2 per cent over the past four years, someone earning this same average salary would be a further £308.40 better off. If you take this off the headline saving in NI, it leaves a saving of just £139.46 over the year or a meagre £2.68 a week.

Rachael Griffin (pictured), tax and financial planning expert at Quilter, said: “The Chancellor’s 2p cut to National Insurance was the big ‘rabbit out of the hat’ moment at the Autumn Statement, providing UK workers with some long-awaited respite via a boost to their monthly take home pay from this month.

However, while a £447.86 yearly top up for the average worker will be welcomed, it will hardly be life changing.

“Getting more money into people’s pockets is key, and thawing the frozen income tax thresholds could help considerably.

“With an election rapidly approaching, the Spring Budget will likely be the Chancellor’s final opportunity to make any vote swaying announcements and income tax is widely rumoured as being top of the agenda to curry favour with voters – particularly younger cohorts.

“Income tax thresholds are currently frozen until 2028 so a reduction alongside the cut to NI could bring some much-needed relief to UK workers who have borne the brunt of the cost-of-living strain.

“The government’s adoption of a stealthy fiscal drag approach has resulted in a huge number of UK workers being pushed into higher income tax bands as wages have risen rapidly in an attempt to keep up with inflation.

“Recent figures from the OBR, for example, show there will be an estimated 7.5 million higher rate taxpayers by 2028/29 if thresholds remain frozen, almost double the 3.8 million there were in 2019/20.

“For the time being, the uptick in monthly take home pay following the NI cut will help ease the strain on people’s personal finances - albeit only marginally.

“Though income tax has made the headlines recently there is no guarantee that the government will make changes, so it is important that people plan their finances based on the current circumstances.

“For those on the cusp of a higher tax band or looking to lower their income tax band in general, seeking professional financial advice and exploring the options available, such as paying more into their pension where possible, could be highly beneficial.”