Budget 2024: Personal Tax Factsheet

Because of the progress the government has made, the economy is beginning to turn a corner and the government has been able to afford tax cuts for workers as part of its plan to reward work and grow the economy. Spring Budget 2024 shows it is sticking with this economic plan.

What is National Insurance?

• National Insurance is paid by people between age 16 and State Pension age who are either an employee earning more than £242 per week from one job or self-employed and making a profit of more than £12,570 a year.

What is the High Income Child Benefit Charge (HICBC)?

• The High Income Child Benefit Charge (HICBC) is a tax charge that applies to higher earners who receive Child Benefit, or whose partner receives it.

National Insurance has been cut again

• Building on changes made at Autumn Statement the government has cut taxes again for 29 million working people.
• The government is cutting the main rate of employee National Insurance by 2p from 10% to 8% from 6 April 2024.
• The government is also cutting a further 2p from the main rate of self-employed National Insurance on top of the 1p cut announced at Autumn Statement and the abolition of Class 2.
• This means that from 6 April 2024 the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6%. Combined with the abolition of the requirement to pay Class 2, this will save an average self-employed person on £28,000 £650 a year.

• Today’s tax cuts, combined with the tax cuts announced at the Autumn Statement 2023, mean:

• A hard-working family with two earners on the average salary of £35,400 each will be better off by £1,826.[1]
• An average full-time nurse on £38,900 will be better off by £1,053.[2]
• A senior nurse with five years experience on £42,618 will be better off by £1,202.[3]
• The average police officer on £44,300 will be better off by £1,270.[4]
• A cleaner working night shifts on £21,058 will be better off by £340.[5]
• A typical junior doctor on £65,000 will be better off by £1,508.[6]
• A typical self-employed plumber on £34,361 will be better off by £846.[7]
• The typical teacher on £44,300 will be better off by over £1,270[8]

Reforms to HICBC

• The government is also increasing the income threshold at which HICBC starts to be charged from £50,000 to £60,000 from April 2024.
• In addition, the rate at which the HICBC is charged will also be halved from 1% of the Child Benefit payment for every additional £100 earnt above the threshold, to 1% for every £200. This means Child Benefit will not be withdrawn in full until individuals earn £80,000 or higher.
• Overall, the government estimates almost half a million (485,000) hard-working families will gain an average of £1,260 towards the costs of raising their children in 2024/25. 170,000 families will be taken out of paying the tax charge.
• The government recognises issues that have been raised around the unfairness in how the HICBC is currently charged on an individual basis. For instance, dual income families on £49,000 each (with a household income of £98,000) may not be liable to the HICBC, but a single parent earning over £50,000 could.
• In response, the government plans to administer the HICBC on a household rather than individual basis by April 2026, and government will consult in due course.

As a result of National Insurance cuts at the last two fiscal events combined with the government’s cuts to the High-Income Child Benefit Charge:

• A couple with 2 school aged children, both working full-time, one on £60,000 and one earning the average salary (£35,000) will receive an annual gain of £4,600.
• A couple with 2 school aged children, both working full-time, one on £80,000 and one earning the average salary (£35,000) will receive an annual gain of £2,400.
• A single earner couple with 2 school aged children, where one is working full-time on £62k will receive an annual gain of £3,500.

Source: ONS and HM Treasury calculations. Mean earnings taken from ONS Annual Survey of Hours and Earnings (ASHE) for 2022-23.

Lowering the average tax rate on income

• The effective personal tax rate is defined as the Employee National Insurance and Income Tax paid as a proportion of an individual’s income.
• For the median earner this has fallen since 2010, and in 2024-25 will be the lowest it has been since 1975.[9]
• The changes made at Autumn Statement 2023 and Spring Budget 2024 mean that for single individuals on average salaries, personal taxes would be lower in the UK than every other G7 country, based on the most recent OECD data.[10]
• In 2024-25, the median full-time employee will pay less tax as a share of their earnings than they did in 2010-11 by 4.6ppts.[11]
• In 2028-29, the median full-time employee will pay less in tax as a share of their earnings than they did in 2010-11 by 4ppts. [12]

Impacts of the National Insurance cuts

• Combined with the 2p cut announced at Autumn Statement 2023, this is a tax cut worth over £900 for the average employee on £35,400 in 2024-25 – a one third reduction in the main rate of National Insurance.
• This means that from 6 April 2024 the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6%. Combined with the abolition of the requirement to pay Class 2, this will save an average self-employed person on £28,000 £650 a year.
• Taken together with changes at Autumn Statement, this is a tax cut worth over £20bn per year, the largest ever cut to employee and self-employed National Insurance.
• The OBR forecast that, because of the 2p National Insurance cut announced at Spring Budget 2024, total hours worked will increase by the equivalent of almost 100,000 additional full-time workers by 2028/29.
• The OBR further expect that, as a result of these further cuts, just over 30,000 people will move into work (over 15,000 in full-time equivalent terms) by 2028-29, with a further increase in hours worked by those already in jobs equivalent to just over 80,000 full-time workers.
• Due to the successive cuts to employee and self-employed NICs announced by the government at AS23 and SB24, the OBR forecast that total hours worked will increase by the equivalent of almost 200,000 full-time workers by 2028-29.

Net Impacts of Personal Tax Changes

This table demonstrates the gain to workers on different income levels compared to what they otherwise would have paid, in 2028-29, thanks to the NICs cuts at Autumn Statement and today, and to above inflation increase to tax thresholds since 2010.[13]

• Thanks to the NICs cuts at Autumn Statement and today, and to above-inflation increases to thresholds since 2010, an average worker on £35,400 in 2024-25 will pay over £1,500 (£1,548) less in personal taxes than they otherwise would have done.[14]

Impacts of HICBC reform

• The OBR estimates that as a result of both reforms to HICBC those already working will increase their hours by a total equivalent to around 10,000 additional full-time individuals by 2028-29.

Impacts of National Insurance cuts and HICBC reforms

• Due to both the Autumn Statement 2023 and Spring Budget 2024 cuts to National Insurance, and changes to the High Income Child Benefit Charge, the OBR forecast that total hours worked will increase by the equivalent of around 210,000 full-time workers by 2028-29.

Impacts of National Insurance cuts, HICBC reforms and wider labour market policies

• The OBR further expect that, as a result of these further cuts, just over 30,000 people will move into work (over 15,000 in full-time equivalent terms) by 2028-29, with a further increase in hours worked by those already in jobs equivalent to just over 80,000 full-time workers.
• Due to the successive cuts to employee and self-employed NICs announced by the government at AS23 and SB24, the OBR forecast that total hours worked will increase by the equivalent of almost 200,000 full-time workers by 2028-29.
• Accounting for policies announced at this Spring Budget and the previous two fiscal events, the OBR forecasts that tax and labour market measures will increase total hours worked by the equivalent of more than 300,000 full-time workers by 2028-29.

Annex

Key National Insurance Rates and Thresholds from 6 April 2024