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Centre for Policy Studies

Raising National Insurance thresholds to match Income Tax welcome

“The Centre for Policy Studies warmly welcomed the Chancellor’s landmark decision to raise National Insurance thresholds to the same level as income tax, in response to the cost of living crisis.

“This policy, the Universal Working Income, was suggested by the Centre for Policy Studies in its landmark 2018 paper Make Work Pay, and was adopted by the Conservatives in their 2019 manifesto. At the time, we calculated it would take 2.4 million people out of tax altogether.

“The CPS had recently argued that increasing NI thresholds was the best way to offset the effects of the Government’s increase in National Insurance for those on low and average incomes – but welcomed the Chancellor’s decision to go much further.”

Adam Smith Institute

Chancellor is ‘gas-lighting’ voters over his tax plans

“The big announcement today will undoubtedly be the 1p cut to the basic rate of income tax. Such a cut won’t go into effect until 2024 and Brits need relief now. It’s a cynical ploy to cut tax just in time for the next election, while at the same time hiking tax on workers through National Insurance. In terms of intergenerational inequality, lowering income tax while increasing NIC shifts the tax burden from the old to the young.

“In an ideal world, the Chancellor would have scrapped the planned National Insurance Contribution rise, although it is encouraging to see that he plans to raise the NIC threshold in line with income tax thresholds.”

TaxPayers’ Alliance

The Treasury is taking with one hand to give away with the other.

“Cutting income tax down the line will be easily offset by the upcoming national insurance hike and freezing income tax thresholds, leaving taxpayers out of pocket overall. If the government wants to give taxpayers and businesses a respite from rises, they’d do well to simply scrap the health and social care levy.”

“The alignment of income tax and national insurance is a welcome step to simplifying the tax system. The chancellor should take this chance to combine the two into a single income tax and offer a really radical reform of the tax code.”

Centre for Social Justice

The reality is this cost of living crisis is just getting started

“Today we needed to see a strategy for those struggling the most. Universal Credit remains the best weapon in Government’s arsenal to get support directly to those who will be worst hit by the spike in energy prices, while also helping claimants into work.

“Building on the profoundly welcome cut to the taper rate at the Autumn Budget, the Government should further harness the flexibility within UC to help those furthest from the labour market by investing more in the system in response to rising energy costs and the wider cost of living.”

Bright Blue

Since the Chancellor seems to be allergic to welfare, he is hamstringing himself by refusing to do what would help best

“This is the confused Chancellor. He is desperate to burnish his Hayekian credentials to his colleagues, but he has been consistently Keynesian in his response to two major crises during his short tenure, using a mixture of public spending and now tax cuts to stimulate the economy through troubled times. Public debt, tax levels and inflation will remain historically very high for the foreseeable future, much higher than what fiscally hawkish economists would advise.

The fairest way of helping households struggling with a range of costs, especially fuel and energy, is through broad subsidies such as Universal Credit or broad taxes such as VAT, National insurance or Income Tax.”

Policy Exchange

It is not surprising that the Chancellor is trying to hold on to fiscal rules

“Indeed, the Chancellor’s focus on security in this Spring Statement reveals the tension at the heart of a new culture of enterprise in these difficult economic times. In the long-term, it is the creative destruction, innovation and churn that create a resilient economy. But in the short-term, you need resilient businesses who aren’t laden with debt service costs or input squeezes to make those long-term investments. You need consumer confidence, protected by Government spending in difficult times, to power private business.

“In this Statement, the Chancellor is making the judgement that, ultimately, a moderate intervention will suffice for now, to get through the current challenges, and that too much protection, too much ‘security’ will ultimately cover up weaknesses and hamper the dynamic economy the Chancellor is so eager to create. This is perhaps the biggest call of all, and we should all hope he is right.”

Institute of Economic Affairs

This was a mitigation mini-Budget, not a radical one

“The reduction in fuel duty will make a small difference to households. The decision to raise the National Insurance threshold means workers on an average wage will see their contributions fall, despite the planned 2.5 percentage point rise going ahead. The pledge to reduce the basic rate of income tax is welcome.

“But the UK will spend £83bn on debt interest this year – almost double our entire defence budget. The Chancellor will not achieve economic ‘security’ without a commitment to drastically bringing down our tax bill and reducing government spending, which has spiralled out of control. Only then will he boost our anaemic growth forecasts.”

Onward

Time is running out if the Chancellor wants his economic plan to be felt before the next election

“Today’s statement was a firefighter’s statement. The Chancellor has warned about inflation since he entered the Treasury and today his warnings were realised. The 5p cut to fuel duty and the rising threshold for National Insurance contributions offer considerable protection against spiralling inflation, especially for those on the lowest incomes – and, from 2024, he ensured that voters will keep an extra penny from every pound they earn.

“Critics will say he should have scrapped the planned National Insurance rise. But doing so would have meant finding £12 billion elsewhere for the NHS and social care, or explaining to voters why they must wait months for operations in the run up to a general election. Ultimately this left him with no easy choices.

“But while voters recognise that the Chancellor is fighting fires on all fronts, he cannot lose sight of why the Government was elected back in 2019 – to level up opportunity across the UK. Today’s statement had positive language on capital investment, R&D and apprenticeships, but scant detail and no decisions until the Autumn.”

Conservative Environment Network

Today’s Spring Statement will help people cope with rising household bills 

“Scrapping VAT for insulation will help people upgrade their homes and reduce their energy bills. This quick and simple tax cut will help families with soaring gas prices. The Chancellor should also look to expand existing energy efficiency schemes to help fuel poor households insulate their homes.

In the short term, a fuel duty cut will soften the blow of rocketing oil prices, helping motorists and cutting the cost of transporting goods across the country. But the crisis underlines the need urgently review the UK’s road taxes.

As people switch to electric vehicles, which will reduce the UK’s dependence on expensive oil imports, road taxes like fuel duty will need to be replaced. This is an opportunity to deliver a fairer deal for motorists and cut congestion while raising revenue for excellent public services.”

Joseph Rowntree Foundation

Chancellor has abandoned many to the threat of destitution, not economic security

“The Chancellor has acted recklessly in pressing ahead with a second real-terms cut to benefits in six months, while prioritising people on middle and higher incomes.

“Changes to National Insurance won’t help those who aren’t working or can’t work due to disability, illness or caring responsibilities, and exposes them to an increased risk of becoming destitute. This means they will face regularly going without absolute essentials such as food, energy and basic hygiene products.

“We can’t build a strong or secure economy by weakening the incomes of the poorest. With benefits reaching their lowest level in real terms since 1985, the Chancellor had ample opportunity with his increased headroom to uprate them in line with inflation to protect those most at risk.”

Institute for Fiscal Studies

If he wants to be remembered as a tax reforming chancellor, so far he is headed in the wrong direction

“There are two paradoxes at the heart of today’s statement. The Chancellor has managed to announce tax cuts without reducing the planned tax take from previous plans. And by saying nothing about spending, he is reducing the real-terms generosity of his plans for spending on public services. That’s what inflation does.

“The cuts to income tax and National Insurance are effectively paid for by increasing revenues as a result of fiscal drag. The freezing of the income tax personal allowance and higher rate threshold turn out to be much bigger tax rises than first intended. As a result, almost all workers will be paying more tax on their earnings in 2025 than they would have been paying without this parliament’s reforms to income tax and NICs, despite the tax cutting measures announced today.

“And by keeping to previously announced cash plans for public spending Mr Sunak is being considerably less generous to public services than he intended when he set out his spending plans in the Autumn.”