The national insurance and income tax starting thresholds are to be equalised from July, the Chancellor has announced.

In his spring statement to the House of Commons, Rishi Sunak confirmed that people will be able to earn £12,570 a year without paying any income tax or national insurance, after raising the threshold for national insurance by £3,000.

Sunak said the measure is a cut for employees that will be worth £330 a year. He added that it is “the largest increase in a basic rate threshold ever, and the largest single personal tax cut in a decade”.

In a separate move, the Chancellor also announced that before the end of this parliament, in 2024, the government is to cut the basic rate of income tax by 1p from 20p in the pound to 19p. Sunak described this decision as “a tax cut for workers, for pensioners, for savers”, and a “£5bn tax cut for over 30 million people.”

However, in response, Labour’s Shadow Chancellor, Rachel Reeves, said that Sunak’s national insurance threshold increase is the “wrong tax at the wrong time”.

She told the House that the Chancellor could have put a windfall tax on energy companies, but warned that his choices are “making the cost of living crisis worse, not better, for people”.

Commenting on the Chancellor’s measures, Aegon pensions director Steven Cameron, said the move will be “welcomed by many as helping mitigate the cost of living squeeze”.

“There had been calls for the government to defer the increase of 1.25% in national insurance, but Sunak clearly was not prepared to do so and instead has opted to make a major increase in the national insurance threshold. This will reduce the impact of the 1.25% increase for all, and will take anyone earning under £12,570 out of paying any national insurance contributions.  

“However, increasing the threshold has longer-term ramifications. Setting aside the 1.25% increase, which will be ring-fenced to pay for social care and NHS support, raising the threshold will reduce the amount being collected in national insurance from today’s workers to pay for today’s state pensions. This will happen not just in the coming year but also in all future years, storing up longer term challenges for the funding of state pensions which are paid for out of national insurance on a pay as you go basis.”

The Chancellor delivered his spring statement on the same day that the Office for National Statistics (ONS) reported that CPI inflation has hit 6.2%, the highest level for 30 years.

Other measures were announced in the Chancellor’s statement aimed at helping with consumer’s energy costs, including a 5p per litre cut to fuel duty a VAT cut on energy saving devices to zero, and a doubling of the government's household support fund to £1bn from April.

Chief of Staff at Wesleyan Group, Nathan Wallis, added: “The Chancellor’s announcements today go some way to addressing the very real challenges being faced in households across the UK but are unlikely to go far enough. Some of our customers are lying awake at night, worried about the impacts of the cost of living crisis and today’s announcement may ease the burden but won’t make it go away.
  
“Many households are now focusing on how to manage day-to-day costs but making radical changes – such as dipping into pensions or savings to pay bills – should be a very last resort as this could have significant implications on people’s finances in the future.”

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