What do Hunt’s income tax and NI changes mean for your pay?

Britain’s new Chancellor announced an income tax u-turn this morning, meaning the 20 per cent basic tax rate will no longer be cut to 19 per cent as planned. 

Earlier this month, Jeremy Hunt’s predecessor Kwasi Kwarteng u-turned over the planned controversial abolition of the additional rate 45 per cent tax band for those earning over £150,000.

The 1 percentage point cut to basic rate income tax – paid on income earned between £12,571 and £50,270 – was first announced by Rishi Sunak, then brought forward a year by Kwarteng and has now been put on ice by Hunt indefinitely. 

But the spiking of the National Insurance hike that has already come in will still happen. 

We explain what this means for your pay below. 

Hunting for calm: The income tax cut from 20 per cent to 19 per cent will be postponed indefinitely, according to the chancellor, Jeremy Hunt.

Had tax cuts come into place in April 2023, an average UK earner on £30,000 a year would have paid £174 less in tax next year, while someone earning £50,000 would have paid £374 less.

For now, Kwarteng’s removal of the 1.25 percentage point increase to National Insurance is continuing as planned. 

This tax rise from former Chancellor Rishi Sunak was meant to see the money raised ringfenced to support health and social care bodies.

It means workers will still see some benefit next year. For example, someone earning £30,000 is still set to save £218 next year from the National Insurance hike reversal.

What you could have won from tax cuts… and what you will get now

Our table shows how people will be affected now at different earnings levels up to £100,000.

The first column shows what the basic rate tax cut would have saved people, the second column what the remaining NI cut will save them, and the final column is what their overall saving would have been.

The maximum income tax saving at £377 came for those income covers the entire 20p band, ie those who then go on to pay 40p tax.  

Under the intitial plans, someone earning £30,000 would have been £392 better off thanks to the income tax and NI cut, this will now reduce to just £93 as the income tax cut has been scrapped.

Meanwhile, someone on £50,000 would have been £842 better off but will now only be £468 better off. 

A higher earner on an annual salary of £100,000 would have been £1,470 better off but will be £1,093 better off.

Rachael Griffin, tax and financial planning expert at Quilter said: ‘The Government is now scrambling to show some semblance of credibility on tax and spending, as they dig their way out of Kwasi Kwarteng’s calamitous ‘mini budget’.

‘The latest u-turn on a policy-that-never-was sees the reduction in income tax from 20 to 19 per cent from April 2023 scrapped. 

‘The idea that you can cut taxes in search of growth is quickly being swept aside for austerity mark.

‘It is clear that Hunt’s emphasis will be on balancing the books, so it is likely that tax allowances and thresholds are not going to become more generous any time soon.’

The income tax announcement was not the only government u-turn today. In one statement Jeremy Hunt reversed all the mini-budget moves apart from the National Insurance and stamp duty cuts.

Changes included a scaling back of the energy price guarantee, now only guaranteed until next April, while cuts to dividend tax rate have also been axed.

Laura Suter, head of personal finance at AJ Bell added: ‘That sound you can hear is the death knell for Trussonomics, with the vast majority of her tax cutting plans now consigned to the bin. 

‘People have had yogurt in their fridge that’s lasted longer than some of the Government’s planned tax cuts, and it’s clear that Liz Truss has opted to have one last attempt at saving her skin by ditching her economic principles rather than try to cling on to her policy plans.’ 

This post first appeared on Dailymail.co.uk