Liz Truss’s National Insurance Cut Will Be Worth Just 63p A Month To Poorest

Liz Truss’s plan to reverse the rise in national insurance would benefit the poorest by just 63p a month, according to a leading think tank.

By contrast, the Institute for Fiscal Studies said the move would be worth around £150 a month to the UK’s highest earners.

Chancellor Kwasi Kwarteng is expected to announce the policy as part of a range of measures aimed at boosting economic growth in a mini-budget on Friday.

He will also cancel the planned rise in corporation tax in a decisive break from his predecessor Rishi Sunak, who Truss defeated last month to become Tory leader.

The 1.25 percentage points increase in national insurance contributions only came into force in April.

At the time, Sunak said it was necessary to raise £12 billion to clear the NHS backlog caused by the pandemic and eventually pay for improvements to social care.

The IFS analysis found that the richest tenth of households, who earn an average of £108,000, will save £1,800 – a tax cut of £150 a month.

However, the poorest 10 percent of households, who earn £12,000 a year on average, will save just £7.66 a year, or 63p per month.

Tom Waters, senior research economist at the IFS, told The Times: “Reversing the recent NICs rise would tend to benefit richer households more than poorer ones, even as a share of their income; the richest 10th, for example, would gain about £1,800 per year, or 1.7 per cent of their income, and the poorest tenth about £7 per year, less than 0.1 per cent of their income.

“That’s partly just a natural consequence of the existing tax system: those towards the bottom of the income distribution don’t pay much in direct taxes, and so it’s hard to cut taxes in a way that makes a big difference to them.

“That said, there are more progressive ways to cut tax — raising the income tax personal allowance, for example, which is currently due to be frozen in cash terms until March 2025. Tax cuts along these lines, including a NICs cut, would of course strengthen incentives for people to move into work.”

Tony Wilson, director of the Institute for Employment Studies, described the plans as a “tax giveaway to relatively high earners”.

He said: “The worry that the Bank of England and Treasury officials will have is that the move is more inflationary than a more targeted subsidy or tax cut at those on lower incomes.

“Another £600 in the pocket of higher earners is likely to lead to more discretionary spending.”

Speaking earlier this month, Truss insisted her tax cuts were “fair” even though they disproportionately benefit the rich.

She said: “The people at the top of the income distribution pay more tax so inevitably when you cut taxes you tend to benefit people who are more likely to pay tax.

“What I am about is about growing the economy and growing the economy benefits everybody.”

.

Leave a Reply

Your email address will not be published.