CHANCELLOR Kwasi Kwarteng has confirmed that the 1.25 per cent hike in national insurance, brought in by Boris Johnson, will be scrapped. 

The “tax cut for workers” was announced by the Chancellor ahead of tomorrow’s mini-budget. It will come into force on November 6.

According to the Treasury, it will mean almost 28 million people keep an extra £330 of their money on average next year, while 920,000 businesses will save almost £10,000 on payroll. 

However, earlier this week, the Institute for Fiscal Studies (IFS) described it as a “giveaway for higher earners.”

READ MORE: Tories planning 'tax giveaway to relatively high earners'

According to their analysis, the poorest 10% of households, who on average earn £12,000, will save £7.66 on their annual tax bill, which works out at just 63p per month or 14p per week.

Those in households with an income of £31,400 - the UK average - will save about £20 a month, while households with an income of £55,000 will save about £58 a month.

The richest tenth of households, those who earn an average of £108,000, will save £1,800 on their annual tax bill.

The cut was a central plank of Liz Truss’s campaign during the summer’s Tory leadership contest.

Speaking ahead of tomorrow’s statement in the Commons, Mr 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.”

The 1.25 percentage point increase in national insurance was announced by former chancellor Rishi Sunak just over a year ago to help fund health and social care.

It was set to be replaced by a Health and Social Care Levy from next April.

Mr Kwarteng confirmed that that too has been cancelled. He insisted funding for health and social care services will be protected.

The Chancellor also confirmed that the increases to dividend tax rates will be scrapped from April 2023 in what the Treasury has described as his “Growth Plan.”

Mr Kwarteng said: “This is part of the government’s pro-growth agenda, backing business to invest, innovate and create jobs and helping raise living standards for everyone across the UK.”

The announcement was brought forward, ahead of the statement, as it can only be done through legislation.

With MPs going on recess tomorrow, the government needed to introduce the bill today.

It also came as the government unveiled plans to change rules around part time workers who claim Universal Credit. 

Currently, if they work more than nine hours a week, then you do not need to search for more work. That is due to increase to 12 hours or more from next week.

However, under the new plans, that will increase to 15 hours at the start of 2023. 

 

During tomorrow's fiscal event, Mr Kwarteng is also expected to cancel the planned increase in corporation tax and axe a number of regulations, including the cap on bankers' bonuses. 

 

That was condemned by Nicola Sturgeon during First Minister's Questions. She told MSPs the Scottish government used their powers and resources to "try to lift people out of poverty" while "the UK Government takes actions that push people into poverty."

She added: "That is not a sustainable, sensible or morally defensible position. 

"The UK Government now seems to want to increase the bonuses that are paid to bankers, while further eroding the incomes of those who are on universal credit. That is utterly indefensible.

"We are showing what we can do with the limited welfare powers that we have—the Scottish child payment is the leading example of that.

"As long as so many such powers and levers lie with a UK Government that is acting in the way that this one is, our efforts will continue to be undermined. That is why it is so important that we get all such powers into this Parliament’s hands as soon as possible."

Meanwhile, IFS researcher Xiaowei Xu said most people will be worse off in real terms this year despite tax cuts and the government's billion-pound package of support to deal with the energy crisis. 

He said soaring inflation meant people across the income spectrum will see a hit to their living standards.

“In real terms we expect the median earner to be £500 worse off than they were last year, which is around a 3% net cut in their income,” she said.

“High earners – but not very higher earners – will be more than £1,000 worse off which would be a larger increase in percentage terms. Lower earners and those out of work will be more shielded from the rising cost of living, both in cash terms and as a share of income.

“Even after the Government is spending vast amounts of money to protect households from the rising cost of living, most households would still see their living standards fall this year compared to last year.”