National insurance hike will ‘wipe out’ half of chancellor’s tax cut for high earners
A sting in the tail of the chancellor's higher earners tax cut yesterday will wipe out half the gains they would have made from the announcement, according to analysis of the Budget.
Philip Hammond said yesterday he would increase the higher rate of income tax from £46,350 to £50,000 a year early next April, saving higher earners up to £723 per year.
However, the chancellor did not draw attention to a corresponding increase in the upper limit of national insurance contributions spotted by asset manager Royal London.
Employers currently deduct 12 per cent on all income between £8,425 and £46,356 for national insurance, and only two per cent on anything above that.
Under the chancellor’s new plan, the upper rate will rise to £50,000.
This means those making £50,000 will pay £362 more in national insurance, wiping out half of their £723 savings from an increase to the income tax threshold.
Steve Webb, director of policy at asset manager Royal London, said: “The chancellor is well within his rights to increase the bands over which the full rate of NI [national insurance] contributions is payable.
“But as this wipes out half of the gain for higher earners of raising the starting point for higher rate income tax, he should have come clean and mentioned this in the budget speech rather than leave it in the budget small print.”
The Treasury did not immediately comment.