Britain’s poorest households will gain just 63p a month from reversing the national insurance hike, a new study says – while people earning more than £100,000 will benefit the most.
Friday’s mini-budget is set to fulfil Liz Truss’s campaign pledge to axe Boris Johnson’s tax increase – designed to rescue the crisis-hit NHS and adult social care – also raising fears of future funding cuts.
But the analysis by the respected Institute for Fiscal Studies (IFS) has underlined the extent to which the move will overwhelmingly be a boost for richer Britons.
The richest tenth of households, earning an average of £108,000, will save £1,800 on their annual tax bill, equivalent to £150 a month, the thinktank says.
In stark contrast, the poorest 10 per cent, three million people who on average earn £12,000, will save only £7.66 – only 63p a month, or 14p a week.
Households with the average UK income of £31,400 will save about £20 a month – while those with an income of £55,000 will save about £58 a month, almost three times that amount.
“Reversing the recent NICs [national insurance contributions] rise would tend to benefit richer households more than poorer ones, even as a share of their income,” said Tom Waters, a senior research economist at the IFS.
Tony Wilson, director of the Institute for Employment Studies, told The Times the plans were a “tax giveaway to relatively high earners” and risked fuelling inflation.
“The worry among Bank of England and Treasury officials will be that the move is more inflationary than a more targeted subsidy or tax cut,” he said.
The 1.25 per cent rise in national insurance was implemented only in April, when it was badged as a health and social care levy, but Ms Truss argues scrapping it can help the UK go for growth.
It is among a £30bn plus of measures that will benefit the rich, including axing next year’s planned rise in corporation tax from 19p to 25p.
Kwasi Kwarteng, the new chancellor, is also expected to remove the 2014 cap on bankers’ bonuses, even as public sector workers are told to show pay restraint to keep inflation in check.
He could also accelerate Rishi Sunak’s plan to cut 1p from basic rate of income, which is due to come in 2024, in time for the expected general election that year.
The chancellor is also expected to create 12 special investment zones that could cut employer national insurance contributions for staff employed within the zones.
The spending spree has triggered warnings that the Bank of England will hike interest rates further – to curb inflation – and could require the new government to rip up its fiscal rules.
They require debt to be falling as a share of national income by 2024 and no borrowing for day-to-day spending.