As part of his mini-budget on Friday morning, Chancellor Kwasi Kwarteng announced that the Health and Social Care Levy on National Insurance (NI) contributions will be cancelled.
As part of a move to reverse April’s rise in NI contributions by businesses and employees, the government has moved to cancel the planned Health and Social Care Levy – a separate tax which was coming into force in April 2023 to replace this year’s National Insurance rise.
The Levy was expected to raise around £13 billion a year to fund health and social care. However, the Chancellor confirmed that the funding for health and social care services will be maintained at the same level as if the Levy was in place, protecting the NHS through the winter and ensuring long-term investment in social care.
The government says the NI reversal will help almost 28 million people across the UK keep more of what they earn, worth an extra £330 on average in 2023-24, with an additional saving of around £135 on average this year.
On the cancellation of the Levy, Andrew Tully, technical director at Canada Life said:
“While the new Levy wouldn’t have solved the social care funding issue the country faces, it did at least recognise the issue and start to work towards solutions. That dilemma of how to pay for social care remains hanging over the country.”
Chancellor of the Exchequer Kwasi Kwarteng said:
“Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the Levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
Kwarteng also announced a range of other personal tax cuts:
- The additional rate of income tax, 45% on incomes over £150,000, would be scrapped completely with effect from 6 April 2023
- The reduction in the basic rate of income tax by 1p to 19% will take effect from 6 April 2023, one year earlier than planned
- There will be a four-year transition period for Gift Aid relief to maintain the Income Tax basic rate relief at 20% until April 2027.
- On average, basic rate taxpayers will be £130 better off, and higher rate taxpayers will be £360 better off, in 2023-24 thanks to the cut to the basic rate
Andrew Tully added:
“There is a pension planning opportunity for those who can afford to make pension contributions in the current tax year. Additional rate taxpayers will get 45% relief, whereas next year contributions will only receive 40% relief. Similarly, basic rate taxpayers can obtain 20% relief on contributions this year, which will fall to 19% next year.”
What else did Kwarteng announce as part of his mini-budget?
- Basic rate of income tax cut to 19% in 2023, one year earlier than planned
- Top rate of income tax abolished – top band now 40%
- National Insurance increases cancelled for 28 million people and one million businesses, and Health and Social Care Levy cancelled
- “We are getting out of the way to get Britain building” – increase disposal of surplus government land to build new homes
- SDLT reduction
- “Unpick” planning restriction on infrastructure to speed up decision-making
- “Investment zones” to build new residential developments – SDLT and NI exemptions for builders
- Cancel planned increase in corporation tax – to remain at 19%. Will “save £19 billion per year” to trickle down into rest of economy
- Limit household energy bills to £2,500 per annum
- Government will subsidise wholesale energy prices for businesses and will provide a guarantee equivalent to that on households
- Energy policy aims to reduce inflation by 5%
- Bank of England to remain independent
- “New approach for a new era focused on growth”
- Aim for trend rate of growth of 2.5%
- Accelerate reforms to pension charge cap – unlock pension fund investments into innovative assets and high-growth businesses
- Remove cap on bankers’ bonuses with a package of reforms to financial services sector to follow
- Legislation to prevent strikes – TUs required to put pay offers to members
- Introduction of VAT-free shopping for foreign visitors to the UK
- Planned Alcohol duty rate increases
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