Ahead of the 2024 General Election, Chancellor Jeremy Hunt has imposed a set of tax cuts to reduce the financial burden on households across the country in the 2023 Autumn Budget. Hunt says he aims to stimulate economic growth whilst reducing the financial burdens on the public.
Initially, these measures were seen as a relief for the taxpayer, but after a closer look, taxpayers may be worse off.
On January 6, National Insurance contributions were cut by 2 percentage points for employees – a sizeable tax cut leading to the average full-time employee earning £35,000 per year saving approximately £450 annually. However, this comes after a period of multi-year freezes to personal tax thresholds.
In 2024, the National Insurance contributions rate cut and a tax increase via the planned freeze in income tax and National Insurance contributions thresholds and allowances in April will mean that when the two come together, there is a tax increase. The effect will vary depending on earnings with the highest earners losing out the least whereas taxpayers earning less than £29,000 per annum will almost all lose out.
The implementation of the reductions in National Insurance contributions was pitched as a a way to ease the financial strain on both employers and employees, promoting job retention and creating a more favourable business environment. However, emerging from these cuts is the extra strain added on public finances impacting the efficacy of public services including healthcare, education, and social welfare programs. Therefore, the seemingly positive step in reducing the taxpayers National Insurance contributions has raised concerns about the potential consequences for public services and social safety nets.
Economic experts are arguing that this set of tax cuts and Nationals Insurance reductions are unlikely to result in the intended economic stimulus. Whilst the wealthy enjoy a considerable reduction in their tax burden, those with lower incomes may find themselves with less help from the public services to cover their basic needs such as healthcare. Subsequently, the results of these tax cuts could lead to a widening wealth gap in the UK, as the financial disparity between the affluent and those with less income becomes more pronounced.
The UK’s tax and National Insurance cuts, whilst designed to boost the economy and alleviate financial burdens on households, appear to disproportionately benefit the wealthy and high earners. With the government having lost approximately £9 billion per year, the strain on public finances raises concerns about the future of the public sector services. As we emerge from the economic difficulties caused by the COVID-19 pandemic, the regressive nature of these cuts may leave the British public grappling with the economic consequences for years to come.
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