The introduction of a scheme to protect the National Insurance records of people, mainly mothers, who might otherwise lose out when it comes to their state pension has been delayed, the government has announced today (30 March).

The delay has been condemned as “deeply frustrating” by Steve Webb, a former pension minister and now partner at pension consultancy LCP.

The issue relates to the impact of the introduction of the High Income Child Benefit Charge (HICBC) in 2013, which aims to claw back Child Benefit from higher earners. Parents – mostly mothers – can still claim Child Benefit, regardless of the charge, but if they or a partner has an individual income above the threshold, they face a tax bill which may wipe out the value of the Child Benefit.

After HICBC was introduced, hundreds of thousands of parents reacted by simply not claiming the benefit.

However this created a new problem – not claiming Child Benefit also meant not getting a valuable ‘National Insurance credit’ for anyone with a child under 12. These credits help to protect the state pension record of those who are at home raising children.

Another problem was that although parents who later realised they might miss out could make a Child Benefit claim (but ask for the National Insurance credits and not the cash benefit), such claims could only be backdated for three months. This meant they could still have years missing on their National Insurance record.

To sort out the issue, in April 2023 the Conservative government under then prime minister Rishi Sunak promised to create a system where parents in this position could be awarded ‘replacement credits’. This system was due to come into force from April 2026.

However the government has announced a delay of one year in the introduction of this scheme, which is now due to open in April 2027.

Who will be affected by the delay to the “replacement credits” system?

Those who won’t reach state pension age until after April 2027 should not be affected – provided they had not inadvertently paid voluntary National Insurance contributions for the ‘missing’ years.

But, Webb pointed out, the delay will be especially frustrating for those who have already reached state pension age or will do so shortly, and may get less in state pension than they are due. In response, HMRC has said people who have lost out, in terms of reduced state pension, may be able to claim financial assistance.

Webb from LCP said: “It is deeply frustrating to see a delay in a scheme designed to unpick a mess in the pension system. When the High Income Child Benefit Charge was introduced in 2013, some parents – mostly mothers – decided it wasn’t worth bothering to claim Child Benefit, only for them or a partner to get a tax bill for the same amount. But by not claiming Child Benefit they also threw away valuable National Insurance credits towards the state pension.

“The government promised several years ago to fix this problem by creating ‘replacement credits’, but now we hear – just a few weeks before the new system was about to be introduced – that it has been delayed by a year. The whole thing has been a mess from the start.”

An HMRC spokesperson told MoneyWeek: “We can reassure parents and carers that when the service launches in April 2027, they will still be able to claim credits going back to January 2013, meaning no one will miss out on them.

“Because those who benefit from the service will be families with children under the age of 12 since 2013, we expect very few to have reached state pension age by this April.”

What are the current High Income Child Benefit Charge rules?

Since 2024/25, if you or your partner earn more than £60,000 per year, you will be affected by the High Income Child Benefit Charge. You’ll pay 1% of the Child Benefit back for every £200 you earn over the threshold.

This means if you or your partner earns £80,000 or more, you’ll repay all of the Child Benefit through the tax. Affected parents can opt out of Child Benefit payments. This means you are still registered for Child Benefit but don't get paid the money – letting you avoid having to pay the tax charge but still receive National Insurance credits.

Previously, if you or your partner earned more than £50,000 per year, you'd have to pay some of your Child Benefit back. It would be lost entirely to the tax if you or your partner's income was £60,000 or more.

If you are a mother juggling the demands of raising a family while trading commodities for a hedge fund, and you also happen to be hacked off with your employer, then 2026 could turn into a very good year. The Employment Rights Bill currently making its way through Parliament, is about to award you lots of extra rights. There is just one catch. It will also make firms very reluctant to hire anyone – crushing the economy at a moment when it is already stagnating.

The Bill, being driven through by junior minister Kate Dearden, is likely to turn into one of the most significant reforms of a Labour government that, in most respects, has done very little apart from putting up taxes to spend more on welfare. We already had a good idea that it was likely to be very damaging. But as the small print has started to emerge as it makes its way through Parliament, it is turning out to be far worse than anyone had feared.

Take salary caps, for example. Right now, the law limits the amount a tribunal can award to £118,223, or one year’s salary. After negotiations with unions, that will now be scrapped, allowing potentially unlimited claims against firms. It is not hard to see how that is going to end up.

A star trader in the City, or an exceptionally well-paid CEO, might be making £1 million or more a year, and they will now be able to sue for several times that amount if they feel they have been discriminated against, or unfairly dismissed. It will create huge incentives to game the system, simply because anyone on those kinds of earnings will be able to hire the best lawyers to make a claim, and might well make themselves several million by doing so.

The cap was designed to ensure the tribunal system was mainly there to protect low-paid workers from exploitation, but now it will be used just as frequently to secure vast payouts for the highest paid.

Or take working mothers. The Bill will make it impossible to dismiss women who are pregnant, on maternity leave, or for six months after they return to work. Persistent lateness, poor performance, or a bad attitude won’t count, and even a conflict of interest, such as shares in a rival company, might in some cases not be enough. In effect, they will become almost a specially protected class, against whom very limited action can be taken. Given that there are around six million working mothers in the UK, that is no joke.

And this comes on top of all the extra rights that were already in the first draft of the legislation. Employees will have the automatic right to ask for flexible working from day one, instead of in exceptional circumstances, and if courts beef up that right, as they almost certainly will, then it will essentially be up to staff to decide when and where to work.

Zero-hours contracts will face lots of fresh restrictions. Statutory sick pay will be available from the first day someone reports as feeling unwell. Parental leave will be mandatory from day one in a new job instead of kicking in after an agreed term. Anyone with more than 250 staff will have to produce an annual “gender equality plan”. The list goes on and on.

Impact of the Employment Rights Bill

That is going to be a disaster for the labour market. Staff should, of course, be well-treated and protected. But that is best achieved through a strong economy that generates lots of jobs so that people can pick and choose whom they work for, instead of smothering the market in so much red tape that no one wants to employ anyone in the first place.

The tribunal system is already clogged up, with the latest Ministry of Justice figures showing the number of claims in the pipeline has reached an all-time high of more than half a million. An extra 330 pages of legislation is only going to add to that number.

Only this week, the unemployment rate rose to 5.1%, its highest level in five years, and millions more people have effectively withdrawn from the labour market and are living on sickness benefits instead. The number of job vacancies fell for the second month in a row in November and has now reached its lowest level since 2025. For new graduates, the market has rarely been so weak.

With the rise in national insurance, it was already a lot more expensive to hire in the UK. Soon it will be impossible to get rid of them if they don’t work out. Once the Bill becomes law, expect a full-scale collapse in hiring. Very soon, it will not be financially viable to employ anyone in the UK.

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It took a couple of months for the amount of damage it would do to become painfully clear. In her first Budget, chancellor Rachel Reeves pushed up the national insurance (NI) charges that companies have to pay on every person they employ. Over the following months, vacancies started to fall dramatically, and unemployment rose. Something similar is about to happen after Reeves’s most recent Budget. This time, it is the punishing rise in business rates that will crush the British economy.

After all the speculation, the Budget was a damp squib. The basic rates of income tax were not in fact increased for the first time since the 1970s, and there was no sign of a wealth tax – although the levy on “mansions” comes very close – or an exit tax on the entrepreneurs fleeing for Italy and Dubai. Instead, there was a big increase in welfare spending, paid for with lots of fiddly stealth taxes to raise the money needed to pay for it all. Now, however, the implications of the small print is starting to become clear – Reeves has hiked business rates on companies that are already struggling to make a profit in the UK.

With a series of reforms of the way that rates are calculated, and the way that various reliefs are set, plenty of horror stories are starting to emerge. According to UKHospitality, the average pub is expected to see a £1,400 increase in its rates bill over the next year, and that will be hitting a sector where businesses are already closing at a rate of eight a week.

Property tax consultancy Ryan calculates that music venues such as London’s O2 and Co-Op Live in Manchester face rises of up to £1.8 million in their annual property tax bills. British music studios face punishing increases of £20,000 a year or more.

Eurotunnel, which operates the Channel Tunnel, has said it may have to pull out of any further investment in the UK over fears that its rates bill could rise from £22 million a year to £65 million. The list goes on and on. Right across the UK, firms are facing punishing increases in the amount they have to pay in tax on their premises. It now looks as if many businesses will be facing rises in their rates bills of 50% or more over the coming year.

There are three problems with that. To start with, business rates have to be paid regardless of whether a company makes any money or not. There is “financial hardship relief”, but that is very hard to apply for and there are lots of conditions attached. In effect, it is just a huge fixed cost, much like rent, or staff or raw materials. At least corporation tax is only due on any surplus you manage to generate. A rise in the rates bill will mean that lots of companies, and small companies in particular, are no longer viable, and will have to close down simply because they can’t afford the extra tax.

Higher business rates will force companies to close

Next, they penalise a company for investing and expanding. It is already expensive for a shop to open a new store in the next town, or for a cafe to open up an extra outlet. There is rent to be settled in advance, and stock to be paid for. It might be a year or more before the owner starts to make even a modest profit. But extra business rates will make it even harder to break even. At the margin, it will stop companies from attempting to grow their business.

Finally, rates make it harder for physical businesses to compete against virtual ones. The latest round of reforms might have been designed to level the playing field, but have ended up simply imposing higher bills on traditional businesses. An online shop pays far lower rates than one on the high street, and a food-delivery app pays far less than a gastro pub in the same village. It punishes the businesses that are already having a very hard time staying afloat.

Rachel Reeves came into office promising to prioritise growth. But you can’t do that while at the same time piling more and more stealth taxes onto businesses. The lesson from the NI debacle was that extra employment costs for businesses simply meant they ended up hiring fewer people. Likewise, extra property costs will mean they close down branches and, in some cases, give up completely. The government is repeating exactly the same mistake of its first Budget.

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And so it goes on. The government is to reconsider its decision not to compensate women hit by changes to the state-pension age. Liz Kendall, the work and pensions secretary at the time who made that decision, was apparently not given access to all the evidence she should have reviewed before rejecting a recommendation from the Parliamentary and Health Service Ombudsman (PHSO) to pay compensation of up to £10.5 billion to 3.6 million women born in the 1950s.

Let us hope that Pat McFadden, Kendall’s successor at the Department for Work and Pensions (DWP), upholds her original decision. Many people will instinctively sympathise with a group of older women, some of whom are struggling to get by on low incomes. But the emotional response is the wrong one. The facts of this case do not support a huge compensation payout that would put further pressure on the public finances.

For more than 10 years, Women Against State Pension Inequality (Waspi) has campaigned loudly on behalf of women affected by the policies – including how they were implemented – of successive governments. Waspi has explored every possible legal avenue to redress, kept this issue in the public eye, and at one stage even persuaded the Jeremy Corbyn-led Labour Party to promise a £58 billion windfall.

Ultimately, however, Waspi’s campaign has come up short because its arguments are unconvincing and short on evidence. Payouts are simply not justified in this case. For one thing, it has not always been clear what Waspi wanted. In the early years of its campaign, the group attacked the decision to equalise the state pension age for men and women. We were told women had been promised they could claim their state pension from age 60: they were being “robbed”, despite faithfully paying national-insurance contributions for decades.

Those complaints were always nonsense. The decision to raise the state-pension age for women was made by a democratically elected government in 1995 and agreed in Parliament. It reflected the complete transformation of the labour market since the 1940s, when the state pension was first introduced, as well as the cost of paying these benefits. MPs also noted women’s longer average life expectancies.

Should Waspi women be compensated?

Besides, National Insurance contributions have never gone into a dedicated fund to pay pensions. Women were no more robbed than millions of men who started work at a time when the state pension age was 65 but are now having to wait until 66, 67 or even longer to claim, because governments have also decided to raise the now-equalised state pension age.

To be fair, Waspi’s case has shifted in recent times. It now accepts the government of the day has the right to make pension reforms. But it argues that after 1995, too little was done to ensure women affected by equalisation knew what was going to happen – and that as a result, many women suffered hardship they might have avoided if they’d been able to plan ahead. The impact of that failure was compounded in 2010 when the government decided to speed up equalisation, Waspi adds.

Such complaints appear to have been accepted by the PHSO. In 2024, it found the DWP guilty of maladministration after an investigation of the department’s efforts to make women aware of the pending changes to their state-pension rights. Eventually, the ombudsman recommended payments of between £1,000 and £2,950 for all those affected.

However, the maladministration finding refers to a very short window of time. In 2004, the DWP found that the message about equalisation wasn’t getting through to some women. Officials realised they needed to do more, including writing directly to those women, but various failures meant this didn’t happen until 2009. Without those failures, the PHSO concluded, women would have received letters from the DWP 28 months earlier – and thus had more time to act.

This is the straw at which Waspi has been clutching. Its leaders are delighted by the announcement of a fresh look at the decision not to compensate women for 28 months of maladministration. Their reaction is understandable, but Kendall made the right choice – and McFadden should stick with it. The PHSO’s suggested compensation scheme is an extraordinarily blunt and hugely costly response to a minor injustice: an unaffordable sledgehammer to crack a nut.

And it is a minor injustice. That short period of maladministration adversely affected only a small number of women. Research between 2004 and 2009 found that most women knew the state-pension age was rising and many realised they would be affected. But awareness wasn’t spreading fast enough. So of the 3.6 million women potentially caused problems by maladministration, only a minority were actually affected. Many in that much smaller group may not have been able to do much in any case. They were often poorly paid and lacked access to other resources.

Critically, the PHSO suggested paying a flat rate of compensation to all 3.6 million women as it would be impossible to work out which women knew what 20 years ago. The ombudsman was effectively arguing that since there was no way to work out who ended up genuinely worse off because of the DWP’s maladministration, everyone should get a payout.

That feels utterly disproportionate. It can’t be right to ask the taxpayer to foot the bill for payments to large numbers of women who didn’t suffer maladministration and, in many cases, don’t need the money. Unless the evidence Kendall apparently wasn’t shown turns out to be a bombshell gamechanger, McFadden should uphold her decision.

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It has always been tough to get your first job. But this year, it is proving tougher than ever. According to jobs website Indeed, graduates are facing the worst labour market since 2018. In September, consultancy giant PWC, traditionally a major recruiter, said it was hiring 200 fewer university leavers this year. In the UK, it doesn’t help that the economy has stagnated. But even in the booming US, a similar story is unfolding. According to the research firm Cengage, just 30% of this year’s graduates have found a job in their field. There are different local factors in each economy, but right across the developed world, it is clear that something else is going on: entry-level graduate jobs are disappearing.

It is not hard to work out why that is. AI is accelerating at such a rapid pace that it is now replacing much of the work that was traditionally done by new graduates. Higher up the career ladder, where the major decisions are made, and genuine expertise and insight are usually required, most jobs are still reasonably safe, at least for now. The smart bots still can’t do that kind of work. But drafting documents at a law firm, or checking spreadsheets at an accounting firm, which used to be left to the trainees, can now be performed perfectly adequately by one of the highly developed AI systems. In effect, the bots have taken out the first rung of the career ladder, leaving many graduates struggling to find their way into employment.

That is going to pose a genuine challenge for policy makers. If graduates can’t find a first job, their skills will start to erode, the debts they have taken on to pay for their degrees will never be repaid and they will never have a chance to build a rewarding career, or to contribute to the wider economy. It will be a disaster.

So what should be done? Plenty of people will argue for controls or regulations. They will say that AI systems should not be allowed to replace the work done by humans, or that companies have to stick to the same number of recruits as they were taking on five years ago. There might even be calls to ban AI completely. Such neo-Luddism won’t work. We don’t want to slow the development of AI, given the spectacular gains in productivity across the whole economy it could generate. Then again, we don’t want Gen Z to remain jobless, or for just one generation that just happened to have the misfortune to be born at the wrong time to suffer the entire brunt of the transition from one technology to another.

How to counter the AI jobs bloodbath

There is only one real fix for that: we should radically deregulate the jobs market for the under-30s. In the UK, the Labour government has chosen the worst possible time to give workers full employment rights from day one. It will take a bad situation for new graduates and make it a whole lot worse. It is hard to see why a company would take on someone leaving university this summer when AI might soon be able to do their job, and they will be stuck with them for years, or face a huge compensation payout if they decide to get rid of them. The government should carve out an exemption from that for anyone under the age of 30. It should also go further. Portugal recently offered the under-35s a 100% tax exemption for the first year of employment and 75% in the second year. The UK could easily copy that scheme and so could many other countries. Or else it could slash the national insurance charges for “first rung” graduate jobs, reversing the big increase that was imposed in the last Budget.

One point is surely clear – Gen Z is facing an AI jobs bloodbath. The entry-level work on which careers were built is being replaced by super-smart computer programs that are cheaper to run and easier to control. The only way to counter that is to create lots of new jobs to replace the ones that are being replaced by machines – and only a radical round of deregulation is going to achieve that.

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A number of wealthy Brits are believed to have left the country after Labour came to power in 2024, fearing the UK will become a more hostile tax environment.

Income tax and employee’s National Insurance were not touched by chancellor Rachel Reeves in her first Budget, as she instead directed the extra tax burden towards businesses and people set to inherit larger estates.

There’s now growing fears of tax hikes in the 2025 Autumn Budget as economic growth remains anaemic and some proposed cuts have failed to pass through parliament.

Some reports suggest the chancellor is considering replacing stamp duty with a property sale tax on more expensive homes.

More people are considering moving abroad – polling by the Adam Smith Institute, a think tank, suggests one in four young Brits have seriously considered or are actively planning to leave the country.

With the prospect of relocating overseas becoming more realistic for many in the UK, we look at the most and least expensive countries to be an expat in 2025.

The most expensive countries for an expat

While many UK expats leave the country in search of a cheaper cost of living, some end up in destinations where costs remain high, new research from international insurance firm William Russell found.

The firm worked out the average cost of everyday expenditure, including public transport tickets, a litre of petrol, utility bills, gym membership fees, restaurant meals. They then gave each country a score out of ten.

After crunching the numbers, William Russell found that Switzerland is the most expensive country for expats, scoring 9.29 out of 10.

As the central European country is perhaps best known for its banking sector that pays outsized salaries, it may be little surprise that living costs are hefty.

The average cost of a meal for two people in a mid-range restaurant here is staggeringly high, at £99.84, while gym memberships are the most expensive on the list at £65.74 every month.

Utility and internet bills will set expats back another £238.52 each month, on average, while the cost of public transport is large at £3.08 for the average one-way ticket.

The second-most expensive country for an expat is also in Europe, though much further north. Iceland has an expenditure score of 8.48 as its high living costs makes it an uncompetitive place to move to for expats.

The average price of a one-way public transport ticket in the Nordic nation is £3.77 – the highest of the countries analysed – while the cost of a restaurant meal for two beats Switzerland, setting expats back £103.

Where Iceland does make up for its other high costs is in basic utility and internet bills, which are £124.75 a month.

The third and fourth-most expensive countries for expats are also Nordic – Norway received an expat expenditure score of 7.72, while Denmark scored 7.28. In fifth place was the Netherlands with a score of 7.01.

A list of the top 5 most expensive countries for expats, and their average living costs can be found below.

Source: William Russell (22 August)

The least expensive countries for an expat

There are a wealth of countries where you can comfortably live on a low budget.

Chief among them is Mexico, which received an expat expenditure score of only 0.67.

The average cost of a one-way public transport ticket here is just 46p, while a meal for two people at a mid-range restaurant is also low, at £30.66. The price of a monthly gym membership is the cheapest among the countries analysed, at just £25.21 a month.

The country also has the cheapest average utility bills on the list at £46.06, though you will have to add on £20.32 a month for internet coverage.

Two eastern European countries tie as the joint second-cheapest countries for expats – Lithuania and Poland both have an expat expenditure score of 2.23.

Lithuania has the lowest average internet bill on the list at just £11.64 per month while also enjoying cheap public transport tickets, restaurant meals, and cinema tickets.

The cost of public transport in Poland is also low, at just 87p for a one-way ticket, and residents enjoy cheaper average gym memberships of £27.71 a month than those in Lithuania, who pay £30.93 a month.

Dining out in Poland is also cheaper than in its neighbour, costing an average of £35.82 for a three course meal for two, compared to £51.17 in Lithuania

The fourth-least expensive country for an expat is outside of Europe – South Korea scores 2.28 in William Russell’s analysis. Hungary is the fifth-least expensive country, scoring just 2.55.

A list of the top 5 least expensive countries for expats, and their average living costs can be found below.

Source: William Russell (22 August)

It looks set to be another difficult month for what remains of Britain’s industrial base. On Monday, we learned that the Ineos-owned Olefins and Polymers (O&P) plant at Grangemouth, in Scotland, the largest in the UK, is at risk of closure. Its CEO warned that a mix of rising energy costs and carbon taxes meant the facility was not likely to be viable for much longer, and its parent company couldn’t support it from profits made elsewhere forever. Ineos has already closed one refinery in Grangemouth.

Hull-based Vivergo Fuels, owned by Associated British Foods, and Britain’s largest producer of bioethanol, has also said it may have to close in September. Last month, the Saudi Arabian firm Sabic, one of the world’s largest petrochemical manufacturers, said it would shut its Olefins 6 cracker plant in Wilton, Teesside, after 46 years of production. Nippon Electric Glass closed down the UK’s largest fibreglass factory in June; in March, production came to an end at Vauxhall’s Luton assembly line after 120 years of production. One by one, the UK’s factories are closing down.

The overall figures are shocking. The chemicals industry has witnessed a 40% decline in output since 2021. Cement production has been falling at a rate of 7% a year since the start of the decade. Car manufacturing is now down to levels last seen in the early 1950s, according to figures from the Society of Motor Manufacturers & Traders. Overall output in the “energy intensive industries”, according to the Office for National Statistics (ONS), has fallen by 35% since 2021, and is now at a 35-year low. It is devastating. The UK has not seen the mass closure of industry on this scale since the Thatcher era in the early 1980s.

What is wrong with the UK's industrial base?

It is not hard to work out what has gone wrong. Industrial energy prices have soared. Electricity has risen in price by 75% since January 2021, says the ONS – a crippling rise for most manufacturing firms, where power often accounts for more than half of the total cost base. Industrial energy in the UK now costs 50% more than it does in France, and double what it costs in the US. It is impossible for manufacturers to compete with that kind of difference in costs, no matter how efficient they are.

On top of that, the UK has imposed a bewildering array of green targets and levies that add even more to the cost of production. There is worse to come. A complex system of carbon border credits will charge them for their emissions, and the UK is about to adopt higher EU carbon levies as part of the government’s “re-set” of relations with the bloc. That might help us to hit net-zero, but it will make industry even less competitive.

The cost of employing people has gone up as well with the steep rise in national-insurance charges imposed by the chancellor in the last Budget. It is a lot easier for factories to switch to robots than it is for shops and restaurants, but they still need some workers, and the cost of everyone on the payroll has been increased at the worst possible time. It is clear that not only is the UK’s industrial base collapsing at an accelerating rate, but it is happening largely because of government policies.

That is a tragedy. Britain has a pretty successful industrial base, made up mostly of speciality chemicals, high-end engineering, defence, aerospace and life sciences, all with generous margins, plenty of expertise, and competing successfully on global markets. It accounted for about 10% of GDP, in line with other developed countries. It created plenty of jobs that were typically better paid and more secure than service-industry work, productivity was rising consistently, and it generated lots of exports. It was a vital part of the economy and should have had a bright future.

The mystery is why the government is not concerned. There is hardly any discussion about how to bring down energy costs; the state of the public finances is too dire to contemplate reversing the rise in NI charges; and no one seems to even mention relaxing the net-zero targets. One point is clear: more and more factories will close over the rest of the year – and no one in government seems minded to do anything about it.

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Britain’s chancellor Rachel Reeves is facing at least as much risk from her parliamentary colleagues as she is from gilt markets. Upon delivering the Spring Statement in March, she introduced welfare reforms to ensure the Office for Budget Responsibility (OBR) would confirm she had met her fiscal rules.

But tightening the criteria for disability benefits was a step too far for many Labour MPs, who rebelled once the welfare reforms came to a vote. The government only managed to pass the bill by gutting its substantive fiscal savings, leaving Reeves with an extra £5 billion to find. She broke down in tears, gilt markets wobbled, and a huge fiscal black hole looms.

Tax hikes cannot fill the gap without endangering growth and breaking a manifesto pledge. The fiscal and political constraints are now so great that the chancellor, a keen chess player, must recognise she is in zugzwang: there are no good moves left.

One year on from a historic landslide, it seems almost impossible to contemplate that the government is unable to command a majority in parliament. And yet the welfare rebellion demonstrates the party is unable to accept the fiscal reality.

Debt interest payments total £100 billion a year, almost twice the amount spent on defence and not far off the education budget. This was her inheritance. Such is the debt albatross slung around the neck of the low-growth UK economy.

The chancellor’s first decisions have compounded the problem. Her attempts to boost growth, such as increasing public investment and relaxing planning regulations, only pay off in the long term, whereas the increase in the minimum wage and employers’ national insurance had an immediate effect on business hiring and confidence.

Is there a third way for Rachel Reeves?

But this is mere tinkering when the solution at its heart is a question of political philosophy. Would tax cuts and a small state boost growth, or must the government deliver tax and spend? Liz Truss famously tried part of the former and lost her job – but with government borrowing and the UK tax burden already at record highs, the latter strategy would be an even bigger gamble.

Reeves has tried to plough a third way, promising not to raise the big three taxes of income tax, national insurance and VAT while spending only to invest. The compromise has not worked. Rather than expanding growth, the chancellor has been forced into ever tighter corners.

The fiscal constraint has led to manoeuvres that have confounded even her own electorate. It’s unlikely Labour voters wanted to reduce benefits for the old, the disabled and children with special needs. This is a government with a majority but without a mandate for the actions that the chancellor decided to take.

The lack of a mandate is exactly what caused so many problems for Liz Truss: if Truss had won a general election on a platform to cut spending and taxes, the government might have been able to pursue such policies with impunity, à la Donald Trump.

Instead, UK voters punished the government in the local elections. The party is slumping in the opinion polls, having lost a third of its support in less than a year. Labour MPs are wondering what they signed up for. Many of them are entering parliament for the first time, scarred by 14 years of Conservative rule.

Anything that smacks of “austerity” must be repudiated. The welfare reforms at which so many of them baulked were only going to reduce the growth of disability spending, not cut it. That was a step too far for enough Labour MPs that the government could no longer rely on its majority.

Our analysis of each Labour MP showed that opposition to the welfare reforms extended well beyond the usual troublemakers. We ranked each MP by a number of quantitative criteria such as their voting record, incumbency and ministerial status to create a ranking for how likely they were to rebel. Even some of those with a relatively neutral score voted against the bill, such was the depth of opposition.

This is the start of an ongoing problem that will stymie the government’s agenda. The rebels succeeded and will now be emboldened. The left of the Labour Party is the political tail wagging the fiscal dog. Hence, there are renewed calls for the government to consider a wealth tax. As much as the gilt market is becalmed by the expectation of higher taxes plugging the fiscal gap, anything that dissuades capital and wealth from flowing into British assets would only serve to make the hole even bigger.

The latest Fiscal Risks and Sustainability report from the OBR has highlighted the dependence of the gilt market on the kindness of strangers. Overseas holders of gilts have become an increasing source of demand for the UK’s government debt. Their share of total gilt holdings has risen from 19% in 1998-1999 to 31% in 2023-2024.

If tax increases are thought to harm growth or hurt capital, foreign holders will need a higher yield or lower sterling to compensate them for the increased risk. All of this adds up to a winter of discontent for gilts. The Budget can’t be tough enough to please financial markets while being loose enough to please Labour MPs. The political and fiscal constraints upon the chancellor have combined to leave her in zugzwang, where no move confers an advantage upon her position. Swapping the pieces on the board won’t improve matters either. Les jeux sont faits.

Helen Thomas is the founder and CEO of Blonde Money, a macroeconomic consultancy.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Employers are now paying higher National Insurance contributions after changes to the tax kicked in on 6 April, the start of the new tax year. Chancellor Rachel Reeves first announced the policy in her 2024 Autumn Budget.

The changes are two-fold. Firstly, the rate of employer contributions has increased from 13.8% to 15%. Secondly, the threshold for contributions has dropped, meaning businesses now begin paying the tax once a salary hits £5,000, down from £9,100 previously.

Shortly after the policy was announced, the British Retail Consortium (BRC) surveyed 52 leading retailers on the likely impact of the tax hike.

As many as two-thirds of businesses said they were thinking about raising prices to help offset the costs. Around half said they were looking at reducing hours and overtime or staff headcount.

Now that the policy has kicked in, we are starting to see the effects in the economic data.

The latest GDP figures from the Office for National Statistics (ONS) show the UK economy shrank by 0.3% in April. Tariffs from US president Donald Trump also contributed to the slump.

In an ONS survey conducted in late May, over three quarters (77%) of businesses with 10 or more employees said their staffing costs had increased over the past three months. This was up 41 percentage points compared with late February, and up 17 percentage points compared with a year ago.

As well as higher taxes and tariff uncertainty, businesses are battling persistent inflation, high borrowing costs, and a higher National Living Wage.

Why did the government hike employers’ National Insurance?

Reeves was in a tight spot when she announced the National Insurance increase last October.

In the lead-up to the general election, Labour pledged not to increase taxes for working people, meaning Reeves was forced to look elsewhere when raising revenue to pay for day-to-day spending.

Against this backdrop, taxing businesses looked like a more expedient move. However, critics of the policy have argued it is foolish to think the hike won’t impact workers.

The government is attempting to limit the impact of the NI policy on small businesses by broadening existing tax relief measures, known as the employment allowance. “This means 865,000 employers won’t pay any National Insurance at all next year,” Reeves said, “and over one million will pay the same or less than they did previously”.

However, industry surveys still paint a challenging picture overall. Financial services company Canada Life found that 26% of small and medium-sized businesses plan to reduce pay rises and bonuses to offset the cost, while 12% plan to reduce employee benefits or make redundancies. Twenty percent say they will accept lower profitability.

Who pays National Insurance?

National Insurance is the second-biggest source of revenue for the government after income tax. In the 2024/25 tax year, NI contributions raised more than £172 billion, equivalent to 20% of total tax receipts.

Employers foot the biggest part of the NI bill. They paid 67% of the total in 2024/25.

Some self-employed people are also required to pay NI contributions, depending on how high their profits are. Those beneath the threshold and those who are not currently working can choose to pay voluntary contributions to avoid gaps in their NI record. Your NI record is used to calculate benefits like the state pension.

How much do employees pay versus employers?

There are different classes of National Insurance, depending on your working status. If you are employed, you will pay Class 1. This is split into primary contributions which are paid by the employee, and secondary contributions which are paid by the employer.

Employee NI contributions

There are different National Insurance rates depending on how much you get paid. An employee who earned £1,000 a week would pay £58.66 per week in National Insurance contributions, as the below table shows:

Employer NI contributions

Under the old rules, employers started making NI contributions for an employee once their salary hit £175 per week, equivalent to £9,100 per year. On 6 April 2025, the threshold dropped to £96 per week, equivalent to £5,000 per year.

Previously, contributions were paid at a rate of 13.8%. This has now increased to 15%.

This means employers have gone from paying £113.85 to £135.60 per week in National Insurance, assuming the employee in question earns £1,000 per week. That is an increase of around £22 per week, and more than £1,100 per year.

What tax relief can employers claim?

A tax relief measure called the employment allowance allows some employers to reduce their annual National Insurance liability by up to £10,500 in total. This was previously £5,000, but Reeves increased the allowance as part of the Autumn Budget.

Under previous rules, you could only claim this allowance if your annual NI liability was less than £100,000 in the previous tax year. This meant only small businesses were eligible for the allowance.

To soften the blow of the Budget, Reeves removed the £100,000 threshold, meaning most businesses or charities can now apply for tax relief.

Economic times have been hard in the past few years. Between the pandemic, cost of living crisis, inflation, the rise in employer costs, and now Trump’s tariffs, a great deal of uncertainty has been injected into the working world.

Rising business costs and lowered confidence in the economy have, sadly, meant that redundancies are once again on the agenda for many firms in the UK.

According to the Office for National Statistics (ONS), there were 4.2 redundancies per 1,000 employees from November 2024 to January 2025, equivalent to 124,000 people losing their jobs.

Many of these people losing their jobs are among the over-50s. In the same time period, 32,000 over-50s were made redundant, up from around 29,000 compared to November 2023 to January 2024.

Meanwhile, 93,000 people under the age of 50 were made redundant between November 2024 and January 2025.

Furthermore, in 2024 the Department for Work and Pensions found there were 3.6 million people aged 50 to 64 years who were economically inactive in the UK, meaning they are not employed and not actively seeking work.

While 29.4% said this was because they were retired, the more than 70% remaining cited reasons for not being in work such as sickness or disability, caring for a family member, among others.

Elaine Smith, senior programme manager for the campaign group the Centre for Ageing Better, says: “Workers over the age of 50 who are made redundant can experience particular challenges, as they are three times less likely to return to work within three months than those under 50.”

If you’re approaching retirement and made redundant, your pension is likely to be a key part of your retirement fund. Here’s how redundancy could impact your retirement planning.

What can I do with my redundancy payment? 

If you’re made redundant and you’ve worked for a company for at least two years, you are normally entitled to receive a payout.

Statutory redundancy pay is usually calculated by providing you with a half a week’s pay for every full year you worked while under the age of 22, a week’s pay for every full year between 22 and 41, and a week and a half’s pay for each full year you were 41 or older.

The total number of years this will apply to is 20, and your weekly pay is calculated as the average you earned in the 12 weeks before the day you were given your redundancy notice.

If you were made redundant on or after 6 April 2024, the weekly pay is capped at £700 and the maximum statutory redundancy pay you can get is £21,000. If you were made redundant before 6 April 2024, these amounts will be lower.

The government has also produced a redundancy payment calculator that you can use to see how much you are entitled to.

The first £30,000 of a statutory redundancy payment is paid tax-free, so you have some flexibility to use this money to its full extent.

One option is to put some of this money into boosting your pension, possibly meaning that you could retire earlier, or with a larger total pension income.

Your employer may pay some, or all, of your payout directly into your pension through what’s known as ‘redundancy sacrifice’.

However, be sure that you don’t need this money to meet living costs and that you’re not breaching your annual pension allowance, otherwise you may be stuck trying to make ends meet before you can withdraw your pension.

You can pay up to £60,000 (or 100% of your earnings, whichever is lower) into your pension in the 2025/26 tax year and receive tax relief.

Becky O’Connor, director of public affairs at PensionBee, says: “The financial and tax benefits, including tax relief, of adding a redundancy payment in your pension are significant – especially if you are approaching the age you can access your pension money, anyway, with the added bonus of some tax relief and ideally some investment growth, too.”

How will redundancy affect my pension?

When you’re made redundant, any workplace pension payments you made during your employment will still belong to you. The only change is that your employer will stop contributing to that pension on your behalf.

If your pension is a defined contribution (DC) pension, you have options. You may continue making contributions if your pension scheme allows. Alternatively, you can move your pension pot to a new employer’s scheme if your new workplace offers a better alternative, or move it into a personal pension – like a self-invested personal pension (SIPP) or a ready-made pension plan.

One reason to move your pension is if you can benefit from lower charges elsewhere or a wider investment choice. At retirement, the size of your pot will depend on how much you’ve contributed over time, and on the performance of your investments.

If you have a defined benefit (DB) pension or final salary scheme, although you can transfer your pension to a new workplace pension scheme, or personal pension, you’re likely to leave your pension where it is.

Defined benefit schemes are the gold standard, and the Financial Conduct Authority (FCA) states that you must seek financial advice before transferring a defined benefit pension if it’s worth £30,000 or more. Unlike defined contribution pensions, they aren’t linked to investment returns. With a DB scheme, the amount you receive at retirement is guaranteed, based on your final salary and length of service.

Can I continue to pay into my pension?

You may be able to continue paying into your workplace pension, but this depends on your particular scheme’s rules. For example, the government’s Nest workplace pension allows you to continue contributions.

Alternatively, you can move your pension pot to a new employer’s scheme or your private pension and continue contributing. However, you typically can’t continue contributing to a defined benefit pension once you’ve left that company.

Will I have a shortfall in my state pension?

You may face a shortfall in your state pension if you’re made redundant before building up enough ‘qualifying years’ of National Insurance (NI) contributions. To receive the full new state pension (£230.25 per week in the 2025/26 tax year), you usually need 35 qualifying years of NI contributions.

You can find out how much state pension you’re on track to receive by applying for a forecast (applying online at Gov.UK is the quickest method). The forecast will show your current NI record and how much you’re likely to get if you continue working up to the state pension age.

You may be entitled to claim NI credits if you get certain benefits or have caring responsibilities.

Alternatively, you can make up for any shortfall by buying voluntary Class 3 NICs. The amount certain missing years cost to buy back varies, but they typically cost between £800 and £900.

Buying a missing year can boost your state pension by around £329 a year. Always check to see if you qualify for National Insurance credits before making voluntary contributions.

Can I retire early? What will the impact be?

If you’re considering early retirement after redundancy, consider the potential shortfall in your pension income. Redundancy over 50 can have a big impact on retirement savings, with those affected saving £29,000 less in their pensions, on average, according to analysis by Legal & General.

For example, someone earning £40,000 a year and contributing 10% of their salary into their pension pays about £333 a month. If they retire early, at 57 instead of 67, assuming a 6% annual return after fees, they’d need an extra £55,000 to bridge the 10-year gap, according to the wealth manager Evelyn Partners.

Gary Smith, partner in financial planning at Evelyn Partners, says: “They will be sacrificing 10 years of pension tax relief, employer contributions and investment growth, as well as having to fund a retiree lifestyle for 10 more years.

“If someone pays a redundancy lump sum into their pot that could go some or all of the way to compensating for ongoing contributions, though, depending on the sums involved.”

Can I afford to retire?  

According to the Pensions and Lifetime Savings Association (PLSA), a single person needs an income of £31,300 for a ‘moderate’ standard of living in retirement, rising to £43,100 for a couple.

If you are in a couple, and you both get the full new state pension – which is now £11,973 per year – then you’d need to receive an additional pension income of about £19,154 per a year between you to afford a ‘moderate’ standard of retirement living. A single person who gets the full new state pension would need extra pension income of £19,327 a year.

You can use one of the many online calculators to see if you are saving enough for your retirement.

However, retirement could cost less than you think. You’ll probably pay less tax in retirement, as you won’t be paying National Insurance (NI) on your income, and you can use your tax allowances to maximise your income.

You also have more choice than ever with your pension savings following the introduction of pension freedoms in April 2015. For example, you might remain invested in a flexible drawdown plan, taking only as much income as you need.

UK workers have been promised yet another National Insurance tax cut if the Conservatives are re-elected.

Chancellor Jeremy Hunt has already cut National Insurance (NI) twice this year and the Tory general election manifesto, published today, pledges another 2p reduction.

This would reduce the NI rate for workers from 8% to 6%, having already been cut from 12% to 10% in January and to its current level in April.

The Conservative Party remains behind Labour in the polls so there is no guarantee of this reduction.

Labour has said it won't match this cut in its general election tax plans.

But under the Tory proposals, someone earning £50,000 could be £749 better off with a 2p NI reduction.

“Whether this turns the dial enough for a party that is lagging badly behind in the opinion polls is yet to be seen,” says Shaun Moore, tax and financial planning expert at Quilter.

“This may be a case of too little, too late. The reality is that many people are looking to the difficulties that public services are facing at the moment and wondering how such a tax cut like this will impact the NHS, schooling and other state support. 

“Balancing individual financial relief with the sustainability of public services will be key in ensuring this change benefits the broader society if the party has the chance to enact it.”

How much could you save from another National Insurance rate cut?

Employees age 16 or over have to pay Class 1 NI once they start earning more than £242 a week from one job or are self-employed and making a profit of more than £12,570 a year.

The rate was cut from 12% to 10% in January following Hunt’s Autumn Statement and to 8% in April after the Spring Budget.

The Tory manifesto pledges to reduce NI by another 2p to 6%.

The savings will depend on how much you earn.

Someone on around the average salary in the UK of £35,000 will be £448 better off per year, according to analysis by Hargreaves Lansdown, rising to £754 once you earn more than £55,000.

However, Sarah Coles, head of personal finance at Hargreaves Lansdown, highlights that these savings could be offset by frozen tax thresholds, pushing more people into higher tax brackets through fiscal drag.

“There is no pledge to reverse the freeze either from the Conservatives or any other party,” she says.

Moore adds that cutting NI doesn’t help those receiving the state pension as they don’t pay the tax, although the Tories have pledged to increase this group's personal allowance.

“The Conservatives will be hoping that the triple lock plus policy, which pledges not to tax the state pension, gives pensioners enough to stop them feeling hard done by,” he says.

The government has launched a new digital Check Your State Pension forecast service that it claims will make it easier for people to boost their National Insurance record.

Intended to help people check for gaps in their National Insurance Contributions (NICs) and voluntarily fill them, the Check Your State Pension portal (which is also available through the HMRC app) will provide “peace of mind” to those planning for their retirement and could help “thousands” of pensioners, according to the Treasury.

The move has been welcomed by pensions experts as it should allow people to avoid having to phone HMRC and the Department for Work and Pensions (DWP). Former pensions minister Steve Webb was among those to praise the development, although he also urged the government to allocate more resources to the DWP to avoid creating a “bottleneck” for entitlement reassessments.

It comes after a deadline to buy National Insurance credits to cover a longer period than the standard six years was extended to the end of the current tax year in April 2025. In the run up to the previous deadline in April 2023, £392m of voluntary class 3 NICs were paid as people sought to add thousands of pounds to their annual entitlement.

To receive the full state pension, you have to have 35 years of NICs. On 6 April 2024, the maximum amount you can get rose 8.5% to £11,502 a year (£221.20 per week) thanks to the triple lock.

Check Your State Pension forecast tool will ‘simplify’ process, DWP claims

Launched today (29 April), the new online portal is being jointly run by HMRC and the DWP. It will allow users to see their existing National Insurance record, as well as a forecast of how much state pension they would currently be eligible for when they hit retirement.

The service will also show people who find gaps in their record how much they would need to pay to fill them, and the impact this would have on their final entitlement. People can also opt to select the individual years for which they’d like to boost their pension. However, it is currently unavailable to those who are already receiving the state pension, self-employed people and those who currently live outside the UK who have gaps in their pension record as a result of working abroad.  These people will still have to phone HMRC and the DWP.

The government says those wishing to pay for additional years of NICs will be able to do so securely through the portal. Those who do pay will be sent a confirmation, which will confirm that their National Insurance record will be updated. To log into the service, you will need to have your Personal Tax Account login details. If you don’t have any, you will have to register for an online HMRC account on the main government website.

Nigel Huddleston, Financial Secretary to the Treasury, said: “Having peace of mind when planning for retirement is crucial to ensure people can enjoy later life. That’s why HMRC has launched this new online service today, making a real difference for thousands of pensioners in their retirement while providing certainty to those in their middle years and those still planning ahead.”

Pensions Minister Paul Maynard said the service would “help simplify” the process to boost your state pension. He added that he “would encourage everyone to check” their current record.

The new portal is likely to be most beneficial to those who have gaps in their NICs between 6 April 2006 and 5 April 2018. While you can only usually top up gaps over the previous six tax years, the government is currently allowing people to claim back over this particular 12-year period as part of the transition from the Basic State Pension to the New State Pension.

It is also likely to help people who live abroad who wish to make up contributions for the years when they were resident in the UK. But the government has urged people to check if they can purchase National Insurance credits before they consider paying any voluntary contributions.

Check Your State Pension tool ‘must not create bottlenecks’, ex-Pensions Minister urges

Before the launch of the online service, people wanting to boost their state pension record would have to phone the Future Pension Centre at the DWP to find out what gaps needed filling and how much it would cost to do so. They would then have to phone HMRC with an 18-digit reference number to hand in order to make their payment. The subsequent wait for the DWP to update the relevant details could take several weeks or even months.

These phone lines became jammed ahead of the two 2023 deadlines, as people rushed to top up their state pensions. However, experts expect this burden on both the DWP and HMRC should now be greatly reduced.

Former Pensions Minister Steve Webb, who is now a partner at pensions consultancy Lane Clark & Peacock, said the new portal was “very good news” as it would allow people to avoid this onerous process. He said: “It must be a step in the right direction to be able to do all of this without hanging on a telephone. However, simply getting your NI record updated by HMRC is only half of the story. It then needs DWP to reassess your state pension entitlement based on your improved contribution record.

“There are already too many cases where people wait months or longer to get their pension figure revised. It is vital that the government puts in place new capacity at DWP to process all of these changes, otherwise they will simply have created a new bottleneck in the system.”

Webb was echoed by Alice Haine, personal finance analyst at Bestinvest, who said the new portal was “very timely” given the upcoming state pension deadline next spring. Reflecting on who should look at boosting their record, she added: “People who might need to top up include those who took a career break, as well as low earners or expatriates living and working abroad. Pension shortfalls and errors that have come to light in the last decade have particularly affected women who gave up work to look after children, and widows – and it is now thought many divorcees could also have a State Pension shock awaiting them. 

“Plugging any gaps will ensure you receive your full State Pension entitlement, a vital income source in the later stages of life when you may not be fit enough to continue working or have inadequate private pension savings. Remember, whether someone needs to top up will depend on how many more years they plan to work and whether they are eligible for NI tax credits, which fill the gaps - such as those who are sick, were unemployed or took time out to raise a family or care for elderly relations.”

Haine added that anyone thinking about making up a shortfall in their National Insurance record should “start the process straightaway”.

Millions of workers are set for a national insurance (NI) tax cut worth potentially thousands of pounds this financial year, but the savings may be limited.

Chancellor Jeremy Hunt used his Spring Budget to unveil a new NI cut, after already lowering the tax rate in his Autumn Statement.

Class 1 employee NI rates have dropped to 8% as of the new tax year since 6 April.

Analysis by Quilter suggests the average worker could take home almost £900 more per year due to the changes.

“The chancellor’s additional 2p cut to National Insurance will mean that from the start of the new tax year, millions of hard working Britons will see more money in their pockets each month,” says Shaun Moore, tax and financial planning expert at Quilter.

“This change will certainly be a crowd pleaser.”

But it is not all good news.

Frozen income tax thresholds mean many of the savings could be offset if you are earning more and get pushed into a higher tax bracket, due to the impact of fiscal drag.

Here is how the NI cut could affect you.

What is national insurance?

Anyone over age 16 pays Class 1 NI on their employment income when they start earning more than £242 a week from one job or are self-employed and making a profit of over £12,570 a year.

These contributions help workers qualify for certain benefits such as the state pension and go towards funding public services such as the NHS.

Hunt unveiled a 2 percentage points drop in Class 1 NI rates during his 2023 Autumn Statement from 12% to 10% that started from 6 January 2024. 

The rate has now fallen again since the start of the new tax year to 8%.

Will a national insurance cut help workers?

The more you earn, the more you pay in NI tax so a lower rate ultimately puts more money in your pocket.

Research by wealth manager Quilter suggests the upcoming cut, combined with the January reduction, could see a worker on the average salary of £34,944 take home an extra £17.21 a week, or £894.96 a year.

Before January, a worker on this average salary would have paid £2,684.88 based on a 12% Class 1 NI rate. 

This then dropped to £2,237.40 when the rate fell to 10% and will be £1,789.92 at 8%.

That creates a combined saving of £894.96.

Those earning £50,000 could see annual savings of closer to £1,500.

There is a downside though.

As wages grow, there is a bigger risk of being pushed into a higher tax bracket as allowances remain frozen, warns Moore, which could leave people worse-off.

“The Conservatives have been under significant pressure to shore up support as they head ever closer to the election, and whether this move will achieve this remains to be seen – particularly given the concerns around how much a cut will impact the NHS, schooling and other state support," he says.

"In addition, this change gives nothing to pensioners who do not pay national insurance."

Moore suggests that those who find themselves with a little extra spare cash each month as a result of the national insurance cut should consider how to make the most of it, adding: “You might wish to put it away to build a rainy day fund, or perhaps invest it in your pension to help boost your quality of life at retirement.”

Workers are set for a further national insurance tax cut in April following today’s Spring Budget.

Hunt had already used last year’s Autumn Statement to unveil a 2 percentage points drop in Class 1 employee national insurance (NI) rates from 12% to 10% that started from 6 January 2024. 

He used his latest fiscal update to announce another 2p cut that will take employee NI from 10% to 8% from the new tax year in April.

The Treasury said an average worker earning £35,400 a year will be more than £900 better off this year as a result of the changes.

The chancellor also said he will reduce class 4 NI contributions – paid by the self-employed - from the 8% it was lowered to in the Autumn Statement to 6%.

This could mean the average worker earning £28,000 will be £650 better off compared with last year, the Treasury said.

What is national insurance?

NI is the second largest source of income for the government.

National Insurance Contributions (NICs) are paid by both employees and employers. 

Class 1 NI is charged on employee annual earnings between £12,571 and £50,270.

 A fixed percentage is deducted from a person’s pay packet, and how much you pay dictates your eligibility for state benefits such as the state pension.

Will the NI cut help workers?

Ultimately, the more you earn, the more you pay in NI and the more you will save from these changes.

The median salary in the UK is currently around £28,000 so 2p off Class 1 NICs will add £309 a year to that salary, according to analysis by Evelyn Partners.

Someone earning £40,000 a year would gain £549 and higher rate or additional rate taxpayers on a salary greater than £50,270 would see their annual disposable income rise by £754.  

Taken together with the January cut, this move on NI amounts to a total tax cut – compared to the situation in 2023 - of an annual £618 for a median earner and £1,508 for higher earners, or £51.50 a month and £125.60 respectively, says Toby Tallon, tax partner at Evelyn Partners.

But he warns that taxpayers are still hit by frozen tax thresholds that cause fiscal drag.

“(The NI change) would be a reasonably significant tax cut in isolation, but it is swimming against a rising tide of taxation due to frozen or falling allowances and thresholds, not just for income tax but also capital gains, dividend and inheritance taxes,” he says.

“The drop in NICs will provide temporary respite against that rising tax burden, but will just push down the road by a year or two the point at which the overall tax situation for most people starts to feel more onerous again.

Source: AJ Bell. Figures show annual National Insurance bill.

AJ Bell also highlights that higher earners may feel short-changed as their NI savings are around the same as someone earning half. 

The investment platform highlights that someone earning £100,000 will save £754 on their tax bill, only a bit more than someone on £50,000 who would save £749.

“While some may struggle to muster up much sympathy for those earning six-figures, this move has a huge impact on single earner households,” says Laura Suter, director of personal finance at AJ Bell. 

“A couple each earning £50,000 a year will see their combined national insurance bill cut by almost £1,500 a year but a sole earner on £100,000 will only save £754 a year.”

Sarah Coles, head of personal finance at Hargreaves Lansdown, adds that this cut doesn’t benefit those of state pension age who may have stopped working and no longer pay NI.

Meanwhile, Susan Waites, partner at Hymans Robertson, warns that the cut risks dis-incentivising  pension saving as it erodes the savings an employee makes by sacrificing pay for pension contributions versus the savings their employer makes.

 “Although the increase in take home pay would outweigh the increase in the cost of pension contributions, this is still cuts across Government intentions and industry efforts to incentivise employees to pay much more into their workplace pensions, she says.

“Some employers choose to pay some or all of their NIC saving into the employee’s pension. We would encourage those that don’t to consider doing that.” 

Chancellor Jeremy Hunt has delivered a further cut in National Insurance in today’s Budget statement, for both employees and the self-employed.

It is the last scheduled Budget before the general election, which is expected to take place later this year.

Inside the famous red box were a wide range of announcements, from a new British ISA and a three-year NS&I savings bond to increasing the VAT threshold and abolishing certain tax reliefs. 

Speaking about the widely-anticipated National Insurance cut, Hunt said: “Our changes will help 27 million employees, and two million self-employed people. Changes that make our system simpler and fairer and grow our economy by rewarding work.”

We look at the Budget announcements and how they could affect the pound in your pocket.

National Insurance cut 

In a widely-expected move, the chancellor announced that National Insurance will be cut by another 2p this April, taking the main rate from 10% to 8% for employees.

It follows a 2p reduction that was announced in last year’s Autumn Statement and came into effect in January. 

The government is also cutting a further 2p from the main rate of self-employed National Insurance on top of the 1p cut announced at the Autumn Statement. This means that from 6 April, the main rate of Class 4 NICs for the self-employed will be reduced from 9% to 6%.

The measures will save the average employee £450 a year and the average self-employed person £350 a year.

Hunt claimed that National Insurance had been cut by one third in six months, and the average earner now has the “lowest effective tax rate since 1975”. 

An employee earning £30,000 will save about £349 a year from the 2p National Insurance cut, according to the wealth manager Quilter. Someone earning £40,000 will save £549, while those on salaries of £50,000 will save £749.

Employees on higher salaries of £50,270 or more – in other words, higher and additional-rate taxpayers - will see their annual disposable income rise by £754.

Child benefit high income charge reformed 

While a cut to National Insurance had been leaked in the days leading up to the Budget, the surprise rabbit in the chancellor’s hat was reforming the high income child benefit charge, which was saved until the end of his Budget speech.

Hunt said that child benefit was “good for children, parents and the economy” but that the high income child benefit charge was “confusing and unfair”. 

The charge kicks in when a parent earns £50,000 or more, reducing the amount of child benefit paid, and removing the payment entirely when the parent earns more than £60,000. 

It means that a family where one parent earns £60,000 and the other earns £10,000 (a total of £70,000) does not get to keep any of their child benefit, but a family where both parents earn £49,000 each (a total of £98,000) can keep all of the money. The tax charge has long been cricitised as unfair.

Hunt announced a consultation on basing the charge on a household’s income, rather than the higher-earning parent’s income. He warned that it would need “significant reform to the tax system” so the change would not happen until April 2026.

In the interim, the chancellor said the threshold to start paying the charge would be raised from £50,000 to £60,000, meaning parents who earn less than £60,000 would be able to keep all of their child benefit. Parents that earn £80,000 or more (rather than the current £60,000) will not be able to keep any child benefit. 

The government estimates that nearly half a million families will gain an average of £1,260 in 2024-25 as a result of the change.

British ISA and NS&I bond launch 

Hunt announced that the ISA system would be reformed to encourage more people to invest in UK assets. 

A brand new “British ISA” will be created, with a separate £5,000 annual allowance for investing in UK equities. The chancellor said it would “ensure British savers benefit from the growth of the most promising UK businesses”.

He also announced that NS&I, the government-backed savings organisation that runs Premium Bonds, would launch a three-year British savings bond. The savings account is expected to launch in early April, and will be available to buy online. Other details, including the interest rate, have not been revealed yet.

The Treasury said the launch of a new UK ISA and British Savings Bond would “provide opportunities to save whilst supporting investment in the UK”.

NatWest retail share offer confirmed 

The chancellor also confirmed that the retail share offer of part of the government’s NatWest shareholding would take place this summer, “subject to supportive market conditions and achieving value for money for the taxpayer”.

The government’s shareholding is just below 33%. It intends to fully exit its shareholding in NatWest Group by 2025-26.

Furnished holiday lettings tax regime abolished

The chancellor said he will scrap tax breaks that make it more profitable for second home owners to let out their properties to holidaymakers rather than to long-term tenants to rent.

The regime will be abolished from 6 April 2025, meaning short-term and long-term lets will be treated the same for tax purposes.

The aim is to make it easier for local people to find a home in their community, and stop them being priced out of holiday hotspots.

Scrapping the tax relief will raise up to £245 million a year for the government’s coffers. 

Stamp duty relief for multiple properties axed 

Stamp duty relief for people buying more than one dwelling is also being abolished. This will take effect from 1 June 2024.

Hunt said this was because the relief was being regularly abused. 

Sean Randall, stamp duty partner at the accountants Blick Rothenberg, said that some families had used the relief on annexes, saving thousands of pounds in stamp duty, and that had likely driven the government’s decision to abolish the relief.

He commented: “The government has chosen to abolish a stamp duty relief that incentivises investment in the public rented sector (PRS). The relief can reduce the stamp duty rate for relevant purchases to as low as 1%.

“Although the relief has undoubtedly helped investment in the PRS, it has also encouraged claims made in respect of family homes with annexes – worth up to £88,750 of tax relief for a single annexe. Property companies and institutional investors in PRS will surely be angry that the government has ‘thrown the baby out with the bathwater’ rather than tackling abuse or unfairness head on.”

In terms of how scrapping the relief will affect those buying a property at the moment, the Budget document said: “Property transactions with contracts that were exchanged on or before 6 March 2024 will continue to benefit from the relief regardless of when they complete, as will any other purchases that are completed before 1 June 2024.”

Alcohol duty and fuel duty frozen 

A freeze on alcohol duty, which had been due to end in August, will continue until February 2025. The government said this would result in 2p less duty on an average pint of beer, 1p less duty on a pint of cider, 10p less duty on a bottle of wine, and 33p less duty on a bottle of spirits, than if the planned duty increase had gone ahead.

Hunt said in his Budget speech: “Another cost that families and businesses worry about is fuel. If I did nothing, fuel duty would increase by 13% this month. I have decided to freeze it for another 12 months. This will save the average driver £50 next year.”

The fuel duty freeze means the temporary 5p fuel duty cut is extended and the planned inflation-linked increase for 2024-25 is cancelled. 

Non-dom tax regime overhauled

The non-dom tax regime, for UK residents whose permanent home is overseas, will be replaced with new rules from April 2025.

The Budget document said: “To help reduce taxes on working people the government will ensure that those with the broadest shoulders pay a bit more, by abolishing the tax rules for non-UK domiciled individuals, or non-doms, and replacing them with a residence-based regime. 

"This will ensure that all UK residents who stay in the UK for over four years will pay the same tax on their foreign income and gains, regardless of their domicile status, creating a modernised regime that is simpler, fairer and more competitive.”

CGT rate on property lowered 

The government will reduce the 28% higher rate of capital gains tax for residential property to 24%, from 6 April, 2024.

The lower rate will remain at 18% for any gains that fall within an individual’s basic-rate band.

The government hopes that lowering the higher tax rate will encourage landlords and second home-owners to sell their properties, making more available for home buyers.

VAT threshold increased 

The threshold at which small businesses must register to pay VAT will be raised from £85,000 to £90,000 from April. Hunt said this would support small businesses and help them grow.  

Paul Falvey, tax partner at the accountants BDO, pointed out that while the £5,000 increase was welcome news, "the threshold has not risen in line with inflation over the last five years".

Anyone glancing at their payslip, or preparing their tax return for the January deadline, will already have had the idea that taxes are a lot higher than they used to be. Now it has been officially confirmed. A study by the OECD think tank in December 2023, found the state was taking 35.4% of GDP, a rise of 0.9% over the last year. More significantly, it was the highest level since the group started collecting tax-to-GDP data back in 2000. 

At the same time, a study by real-estate firm Altus found that the UK had the joint highest level of property taxes across the whole of the OECD club of developed nations, with the state taking 4% of GDP out of the economy through levies on houses and land. 

The UK doesn’t rank as especially highly taxed compared with other countries. The OECD study found the UK ranked 16th out of its 32 members in terms of the overall tax burden, and that it was 1.4 percentage points above the average rate. But that is hardly the point. Different economies can tolerate different levels of tax. By British standards, taxes are hitting extraordinarily high levels compared with the past. The pips are already squeaking. 

The reality is that taxes can’t go any higher. Over the whole post-war period, taxes as a percentage of GDP have remained broadly stable. The ratio hit 35% of GDP in 1969- 1970 and dropped to 29% in 1990-1991 at the end of a decade of squeezed spending and tax-cutting under Thatcher. Since then, it has bounced along in a range between 32% to 34%. 

Budgets come and go under different chancellors, with lots of tweaks, and the tax code has more than tripled in length over the past 30 years. But none of it makes much difference to the amount the state actually ends up taking. We are already at 35% of GDP, the highest it has ever been. The longer-term trend shows no government has managed to squeeze more than that out of the economy. 

Sure, taxes can go up. But all that happens is behaviour changes, and the state collects less money. It is not hard to see that already happening in practice. Corporation tax has gone up sharply, but there is no evidence that any more money will be collected, despite optimistic forecasts from the Treasury. A few companies will move operations abroad, others will reclassify spending as investment to take advantage of tax breaks, and at least a few small businesses will simply give up completely. 

Likewise, thresholds have been frozen, but some people will work less, and many others will decide to leave the workforce – already 3.5 million over-50s have taken early retirement even though they cannot really afford it, and 500,000 of the self-employed have stopped working. The list goes on and on. 

It is simple to announce tax rises, but hard to make them stick or control the way workers and firms respond. That wouldn’t matter very much if the state didn’t need the money. This year it will be running a deficit of £80bn and total outstanding debt has risen above 100%. If there is a recession next year, as now seems increasingly likely, government revenues will fall, as they always do when output shrinks, and welfare spending will rise still further. When will the budget be balanced? 

Spending cuts are inevitable. At some point, more will have to be spent on the health service, on welfare, on infrastructure and on housing. Where is the money going to come from? 

The Labour Party, which looks likely to come to power next year, has no ideas. It has promised to close the non-dom rule that allows wealthy foreigners to avoid paying tax on their worldwide income and to put VAT on school fees, but no one believes that will raise much money. Labour’s favourite think tanks, such as the Resolution Foundation, have put forward plans for big increases in capital gains tax, and charging national insurance on the self-employed and landlords. All that would do is hammer investment even further. It is unlikely any extra money would be raised. 

Sooner or later the country will have to start addressing how it intends to control spending instead.

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An online service designed to simplify how you check your state pension and pay for missing National Insurance (NI) credits is due to launch within the next six months.

Many people have bought extra NI credits this year and boosted their state pension by thousands of pounds. The government has extended the state pension top-up deadline several times due to huge demand - you now have until April 2025.

But it is still time-consuming and complex to check and buy missing NI contributions; it requires a phone call to the Pensions Service and then another one to HMRC to get an 18-digit payment number, and some people have faced long wait times to get through on the phone lines.

However, the good news is the government has confirmed it is setting up a digital tool to make the process easier.

We explain how it will work and when it will become available. 

How will the online state pension service work? 

HMRC and the Department for Work and Pensions are working together to launch an online service, which the “vast majority of customers” should be able to use to check and top up their state pension.

The new service will contain information to help customers decide which years they may wish to make up shortfalls on, based on which gap years are available for them to fill and the cheapest or most beneficial years to pay voluntary NI contributions for. Customers will then be able to pay online, should they decide to do so.

The service will also give state pension estimates and forecasts based on National Insurance records. 

It is aimed at people who want to check and pay for NI credits quickly, and who do not need to speak to a government adviser before paying for voluntary contributions.

A government spokesperson said: “We are building a new online service to allow people to see if making voluntary National Insurance contributions would increase their state pension and then make any payments.

“The new service is currently being developed and tested to make absolutely sure it is easy to use and provides accurate information in a straightforward way.”

When will it launch? 

The government says it is aiming to introduce the service later in the financial year 2023-24. This means it should launch sometime in the next six months, before 6 April 2024.

Once the online tool is ready, the guidance on gov.uk around how to check your NI record and top up your state pension will be updated to explain how to use the new service.  

Can I still get advice and top up my pension over the phone?

Yes, if you feel more comfortable talking to someone over the phone, you can continue to call up to find out about your NI record, state pension forecast, and to pay for any missing years – and you'll still be able to do so once the online service has launched.

Contact the Future Pension Centre on 0800 731 0175, or if you're already at state pension age, contact the Pension Service helpline on 0800 731 0469.

How much can I boost my state pension by? 

Buying extra NI credits can be a great way to boost your state pension income with very little risk.

Spending £907 to purchase NI credits (which is one year of NI contributions) could unlock up to £7,740 in extra income over a typical 20-year retirement period.

According to the investment platform Interactive Investor, somebody purchasing 10 years of NI contributions at a cost of £9,070 (10 X £907) could boost their state pension by £77,400 over a 20-year retirement, £33,946 over a decade and £15,927 over five years.

Note the exact cost of buying a year of NI credits varies depending on which year it relates to, and whether they are class 2 or class 3.

To boost your pension entitlement, you can normally buy up to six NI years to fill any gaps. For example, if you've had a break from work to raise children or care for elderly relatives. You usually need 35 full NI years to get the current maximum state pension of £203.85 a week. This means if you have gaps in your record and don’t have 35 years of NI contributions, you may not receive a full state pension later in life.

However, when the new state pension was introduced in 2016, the government made it possible to plug gaps all the way back to 2006.

Right now, you have until 5 April 2025 to buy voluntary National Insurance credits to fill any gaps dating back to April 2006. After that, you can only buy credits going back six years.

This month, the government released official stats saying the gender pensions gap is around 35%. Women will retire with much smaller pots than men - yet they can expect to live longer and are likely to need more money to fund life after work, meaning they also face poverty in old age.

Now, the Pensions Management Institute (PMI) has joined in, warning women face serious obstacles that prevent them from building sufficient wealth for retirement.

PMI’s latest research found breaks in employment, which mainly arise out of taking time out to raise a family, were the main cause of women not saving enough.

But worryingly, only 36% of women know what is in their pension pot - with these women having an average retirement pot of £25,959. Only 4% of female employees have saved more than £55,000 in pension savings.

And do women have other money that can be used for retirement? Seems not, for 60% of women, pension saving is the only preparation for retirement being made.

Motherhood and pensions - filling the gender pension gap 

As a mum, I spent years working as a freelance journalist; I enjoyed the flexibility and variety. But, I must confess and put my hand up to say I did not think about my pension.

Why as a financial journalist did I miss out? First, because my income was ad-hoc, I just focused on my earnings and plugged away at my savings (not to mention there was no ‘free’ cash from my employer to encourage me). 

Second - I was simply too tired to think about my finances. 

But, I was lucky to be able to continue with my career and I did eventually think about my pension, but may have missed out on a few years. 

But this is not the case for many parents, especially mums - as it is ultimately women that take on childcare duties. Many actually stop working due to extortionate childcare costs or the lack of flexibility around their work. 

These women rarely pick up on pension savings and do face a significant shortfall.

When I ask stay at home parents what they are doing to save for retirement, the answer is often ‘nothing’.

 How can stay at home parents build a pension? 

If you’re a stay at home parent, there are some things you can do to ensure you continue to build a pension. 

•  State pension - make sure you look after your state pension by registering for child benefit (regardless of your household income threshold). This ensures you receive National Insurance credits that go towards your state pension - also take a look at our article - how much state pension will I get - to work out your state pension. 
•  Track down lost pension pots - you may have some savings from the past employment which can really add up.
• Set up a personal pension and contribute when you can - not all providers require you to pay in regularly, so if you want to pay in when you can, take a look at PensionBee or Wealthify for example. And don’t forget, you also benefit from 25% tax relief when you pay into a personal  pension, so every £800 invested is worth £1,000. 
•  Ask your partner to contribute - it doesn't seem unreasonable to me for the stay at home parent to ask their working partner to contribute to a pension. After all, if you are at home holding the baby, it is only fair they may help you secure your retirement. 

How to boost your pension 

If you are back to work, even if returning part-time, see if you can boost your pension by paying in more than the minimum contribution. Remember, many employers will match your contribution up to a certain amount, so that means extra free cash from your employer to help you build your pot. 

Also, take a look at our article on how you may be able to boost your pension by purchasing National Insurance credits.  

More help for women 

Sadly, the gender pension gap is an ongoing battle.

In Scandinavian countries, women do not suffer any loss of earnings as a consequence of maternity leave, yet in 2023, raising a family (children who will contribute to the future economy) comes at a cost to women in the UK.

I hope that at the very least, the government is able to step in to help women by introducing financial education drop in sessions for parents and most certainly reduce the minimum income threshold (£10,000) for auto-enrolment, meaning those parents who return part-time are automatically thrown into the pensions system and start to save for their retirement. 

Sometimes, it may just take a nudge or some guidance to help women take action.

And to answer my question - can women have both, the answer is yes, But women, the onus is on you to secure a stronger pension - at least for now it is. 

The UK is in a little financial trouble. Public-sector spending has already reached £1.2trn, or 48% of GDP. That’s another peacetime record. Total government debt is now more than 100% of GDP (up from below 30% before the global financial crisis). That wasn’t a particularly big deal last year. Low rates meant that interest payments were exceptionally low in 2022. Unfortunately that is about “to change dramatically”, says MacroStrategy’s James Ferguson. Firstly, because 28% of our outstanding debt is index-linked. That will raise interest rates by at least 2.5% of GDP this year.

At the same time, it seems clear that the UK is heading for at least a slowdown (judging by the way our money supply is shrinking) and possibly a recession. That has historically added roughly 2%-2.5% of GDP to welfare costs. Not long now and government spending will make up a larger percentage of GDP than the private sector does.

In short, the UK state needs all the money it can get its hands on – note that the tax take comes to more like 35% of GDP than 48%. So you would think that the last discussion the UK’s political classes would be having now is about how to cut taxes. Not so. It seems to make up a large part of what they do talk about. A large part of the Conservative party is keen to ditch inheritance tax (quite rightly – see my past articles on IHT at moneyweek.com). And Rishi Sunak says he wants to cut income tax or National Insurance Contributions (NICs) by two percentage points before the next election. He just isn’t sure which yet.

It seems unlikely that the abolition of IHT will come anywhere near fruition. “Sunak slashes taxes for super rich” seems like a bad headline to kick off an election campaign with. It also seems unlikely that there will be any particularly eye-catching cuts to income taxes given the UK’s miserable fiscal situation. Accountancy firm RSM notes that a 2p cut to income tax would cost £13.7bn if introduced next year. A 2p cut in NICs would cost more like £9.6bn. The number is lower because while income tax is charged not just on earnings but other sources of income, too (rental income for example), NICs are charged only on earnings (and not on the earnings of those under 16 or over state pension age and not on pension income).

The problem for Sunak however is that he might not get as much electoral bang for his buck with NI as income tax. Why? Because the population doesn’t understand it quite so well. Remember, says RSM, that in 2001 Labour won the election with a pledge not to raise income tax, but promptly bumped up NICs instead? Sneaky. But they got away with it.

That said, that Sunak is even considering which to go for between the two, should remind us all that these taxes are both the same thing – income taxes – and that the pointless distinction between them creates both admin hell and a depressing lack of transparency. There is no special insurance fund in the UK that pays for social care and welfare, however much people like to think there is. It all just comes out of the same pot. Why not just say it as it is and merge them?

Part of the answer will be that from the government’s point of view, more transparency is not a good thing at all. Most people in the UK who pay tax will tell you we have three rates of income tax, 20%, 40% and 45%. This isn’t true. Add in NICs, which start at 12% and fall to 2% at the same time as the income tax threshold moves to 40%, and you will see that those rates are 32%, 42% and 47%. Quite high (and much higher when you add in student loan repayments).

There is also the fact that concessions would have to be paid to those not currently paying NICs. So we would in the short term at least all suddenly become aware of the fact that pensioners and those living off savings rather than earned income pay less income tax than the rest of us. I can’t see our already irritated young being particularly pleased by that.

Honesty is the best policy

Transparency doesn’t suit everyone. But over time honesty might. With the truth out there about how high UK income taxes already are, we might consider rebalancing towards a wider tax base (the Scandinavian countries our governments so envy do not rely, as we do, on the top 1% of earners paying 30% of income taxes), and taxing unearned income and capital gains in the same way we do earned income. We might even demand that our money is better spent: note that even in the year before Covid the government lost £5.5bn in fraud, around the same as it raised in IHT in 2018-2019 (doesn’t make you feel good if you were one of the many paying that, does it?).

Simplifying the insanely long and complicated UK tax code (one of the longest in the world, possibly the longest in the world) is not exactly a new idea. Nor is combining NI and income tax: the Office of Tax Simplification offered the government some ideas on it seven years ago.

But it is important: we have a long-term growth and productivity problem in the UK. Our overcomplicated, opaque and confusing tax system may be part of the reason why. As RSM says, if Sunak is serious about cutting taxes, cutting NI will cost him less up front. But revamping the whole income tax system would be both bolder – and, in the long term – better.

Knowing exactly how much money you will receive from the state pension is an important part of planning for your retirement.

The new state pension in the 2026/27 tax year is £240 a week, but not everyone will get this amount.

What you receive will depend on how many years of National Insurance Contributions (NICs) you have made, as well as other factors such as whether you were contracted out or paid into the Additional State Pension.

Here’s how you can find out how much state pension you can get and at what age you can claim it.

How does the state pension work?

The state pension is a payment you get from the government when you reach state pension age.

To be eligible for it, you need to have made National Insurance contributions for a set number of years. The minimum is at least 10 years to get the minimum state pension.

If you are employed, your employer will have paid NICs on your behalf out of your wages.

If you are self-employed, you will have paid NICs through your self-assessment tax return.

You can also top up your NICs record to potentially increase how much you get from the state pension, while some people – like carers or parents – can get National Insurance credits when not in traditional work.

Your NICs go into a national ring-fenced pot from which the state pension is paid. When you retire, you will receive an amount of state pension that's proportionate to what you've put in or received in credit (more on this below).

The state pension is not linked to personal pensions, which work differently. Workplace pensions depend on the performance of the stocks and shares you have invested in and then how you access the pot, which is typically through drawdown or by purchasing an annuity.

The size of the state pension depends on government policy; the current mechanism for this is the “triple lock”, which ensures payments rise by the highest of inflation, wage growth or 2.5%. See our article on “what is the triple lock” for more.

What types of state pension are there in the UK?

There are currently two state pensions in the UK. The one you will get will depend on when you were born.

Basic (old) state pension

The old, basic state pension applies to men born before 6 April 1951 and women born before 6 April 1953. Those eligible will have already hit state pension age, which is currently 66.

The full basic state pension is worth £184.90 a week (£9,614 a year) for the 2026/27 tax year.

To access this full amount, you need:

• 30 qualifying years of NICs if you are a man born between 1945 and 1951
• 44 qualifying years of NICs if you are a man born before 1945
• 30 qualifying years of NICs if you are a woman born between 1950 and 1953
• 39 qualifying years of NICs if you are a woman born before 1950

Having more than the full number of years of NICs will not entitle you to a higher pension payout.

If you don't have the full number of years of contributions, the amount you will get will be reduced proportionately.

So, if you have 20 years of NICs but require 30 for the full amount, you will receive 20/30ths of the full amount (currently £117.63 a week).

New state pension

The basic (old) state pension was replaced by the new state pension in 2016. Like the old version, the amount you get is determined by how many years of NICs you have.

The new state pension is for men born on or after 6 April 1951, and women born on or after 6 April 1953.

You must have 35 years worth of NICs to get the full amount, and at least 10 years to qualify for it at all.

The maximum you can receive under the new state pension is £241.30 a week (£12,547 a year) in the 2026/27 tax year.

The amount you get will be proportionately lower if you have between 10 and 34 years of contributions on your record.

For example, if you have 20 years of NICs, you will get 20/35ths of the full amount (£131.57 a week).

How much state pension will I get?

To be eligible for anything from the new state pension, you need to have a minimum of 10 years of NICs.

If you made NICs before 6 April 2016 (when the basic state pension was replaced with the new state pension) then these are used to work out a “starting amount”.

This will be either how much you would have got under the old state pension rules, or what you’d get if the new state pension had been in place throughout your working life – whichever is higher.

Each year of contributions after 6 April 2016 will add around £5 to your state pension, until you reach the 2025/26 maximum of £230.25.

You can get a pensions forecast from the government showing how much state pension you will get, through the gov.uk website. You will need to register for the Government Gateway to use the state pension forecast tool.

What counts as National Insurance contributions for the state pension?

National Insurance contributions are paid once you are 16 or over and start earning above a particular threshold.

For employees, that threshold is earning over £242 a week, while for the self-employed they are classed as being paid once they make a profit of above £12,570 per year.

Be aware that many people have gaps in their National Insurance record.

Credits are also applied automatically if you receive Child Benefit, something many parents are missing out on. You can find out more about eligibility for National Insurance credits on the gov.uk website.

Can I top up my state pension?

If you haven’t accumulated enough NICs for the full state pension, you may be able to purchase some.

This may be the case because you took time out of your career to raise children, care for someone, or go back into education.

These gaps could mean that you dip below the number of years of NICs needed for the full state pension.

By purchasing voluntary NICs, you can add extra years to your overall record and increase the size of the state pension you get. But keep in mind, this isn't a suitable option for everyone – see our article on when you shouldn’t top up your state pension.

How much it costs to buy a year of contributions depends on which year you're buying. You can buy back as far as six years.

• £824.20 a year (£15.85 a week) to buy 2022/23
• £907.40 a year (£17.45 a week) to buy 2023/24
• £907.40 a year (£17.45 a week) to buy 2024/25
• £923 a year (£17.75 a week) to buy 2025/26

If you're self-employed or you're topping up a partial year, the cost will be lower.

For each year you buy you get an extra 1/35ths of a state pension – that may sound small, but just one extra year could add up to £340 a year to your state pension. That adds up to £6,800 over 20 years.

As long as you live at least three years after the official retirement age, you’ll get your money back and then some.

The government has a digital Check Your State Pension forecast service that it claims makes it easier for people to boost their National Insurance record.

How do I claim my state pension?

The state pension is not paid automatically when you reach state pension age – you need to actively claim it.

The Department for Work and Pensions will contact you in the months leading up to you reaching state pension age to explain how you can do this.

State pension age is 66 for both men and women, but is set to gradually rise to 67 between April 2026 and March 2028 and then to 68 between 2044 and 2046.

If you have not received an invitation letter, but you are within three months of reaching your state pension age, you can still make a claim, and the quickest way to do this is on the government website.

To complete your claim, you’ll need the following details:

• the date of your most recent marriage, civil partnership or divorce
• the dates of any time spent living or working abroad
• your bank or building society details

If you don’t need the money immediately, then it may be worth deferring your state pension payments. We take a look at why it could be worth deferring your state pension in our article on “should you defer your state pension”.

Can I still get the state pension if I retire abroad?

So long as you have built up a sufficient number of qualifying years of National Insurance contributions, then you can still receive the state pension even if you choose to retire abroad.

You will need to start claiming the pension within four months of hitting the state pension age, and you can do so by contacting the International Pension Centre. You can choose for the pension to be paid either every four weeks or every 13 weeks.

Your state pension will go up each year as long as you retire in a country that is within the European Economic Area, Gibraltar, Switzerland – or to a country with a social security agreement with the UK.

It means if you move to countries like Australia, New Zealand, Canada, India or South Africa, your state pension will be frozen and you won’t benefit from the triple lock.

If you're wondering how the UK state pension compares to those in other countries, check out our guide to the countries with the most generous pensions.

Around £500m has been identified in State pension underpayments for the period between 11 January 2021 to 31 October 2023. 

The government said more than 82,000 underpayments have been located, worth just over £6,000 each on average.

These errors have occurred due to administration errors, such as incorrect recording of claimants' National Insurance contributions, made by the Department for Work and Pensions. These errors have been found to date back as far as 1985.

While the DWP has been trying to locate those who were underpaid, not everyone will get a letter and you may have to contact the DWP yourself for redress.  

“While it is clearly good news the government has identified almost £500 million of state pension underpayments, this is still well below the near £3 billion in total costs the DWP is expected to incur once the correction exercise has been completed," Tom Selby, head of retirement policy at AJ Bell, said. 

Former pensions minister, Steve Webb, who is now partner at consulting form LCP, said the continuing scale of state pension underpayment was truly shocking, as this is not just a historical problem with 6 in 100 new pension claims being underpaid.

“Urgent action is needed to drive up standards of administration so that pensioners can have confidence that the pension they are being paid is correct," Webb said.

Who are the underpayments affecting?

The majority of errors affected married women who didn’t get an automatic increase to their state pension when their husband retired.

There were also errors recording credits for time spent at home with children.

The married woman’s rate of state pension is available to married women who do not have the full 30 years of National Insurance Contribution. The rate is set at 60% of the basic state pension your spouse gets.

This means married women could be entitled to claim up to £85 based on current rates. But currently hundreds of thousands of women could be missing out.

The errors were “primarily caused by the complexity of the basic state pension system”, said Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

The DWP is in the midst of a correction scheme to adequately pay over 200,000 people who are receiving the wrong state pension.

“Many of these underpayments go back years and amount to thousands of pounds. Government is making headway in making these repayments, but the scale of the problem is vast, and it will take time to complete but in the meantime many of these people have been under financial strain that they didn’t need to be,” said Morrissey.

The DWP also said the state pension overpayment rate was 0.1%, or £100m, for the 2022/2023 financial year.

How to check if you’re getting the right state pension

Under the DWP’s correction scheme, most should be contacted automatically, but many married women are not.

If this is the case you should contact the Pension Service, and to check if you are being underpaid, you can use this tool on LPC.

Pension top-up changes: The deadline for buying National Insurance credits to boost your state pension has been extended to 5 April 2025.

If you have yet to get in touch with the Department for Work and Pensions (DWP), doing so soon could prove a great way to boost your state pension income with very little risk.

Indeed, by spending less than £1,000 today to buy National Insurance credits, you could unlock up to £7,740 in extra income over a typical 20-year retirement period.

When is the deadline to purchase NI credits?

Originally the deadline for purchasing additional NI credits was 5 April 2023, but the DWP extended it to 31 July 2023 as its phone lines had become jammed with people seeking to top up their contributions.

This gave people over three months to act – but the cut-off has been pushed back for a second time to 5 April, 2025.

In most cases, you can get a full state pension if you have 35 years' National Insurance contributions. But, if you don’t have the full amount by the time you stop working, you may be able to plug the gap by buying additional National Insurance credits.

Even if you have a personal pension, most people under-save and underestimate how much they need for a pension, meaning a state pension could be nice to have as additional income.

“We recognise how important state pensions are for retired individuals, which is why we are giving people more time to fill any gaps in their National Insurance record to help bolster their entitlement," Vicky Atkins, financial secretary to the Treasury, said.

Is purchasing National Insurance credits a good investment?

The investment platform interactive investor calculates that somebody purchasing 10 years of NI contributions (known as class 3 contributions) at the cost of £9,070 (10 X £907) could boost their state pension by £77,400 over a 20-year retirement, £33,946 over 10 years and £15,927 over five years.

Even purchasing one year of NI contributions at the cost of £907 could boost their state pension by £7,740 over a 20-year retirement.

Low earning self-employed people earning under the small profits threshold of £6,725 in 2022/23 and 2023/24 may be eligible to pay class 2 voluntary contributions, which are cheaper than class 3 contributions. Someone paying class 2 contributions would only need to pay £179 per year to buy an extra year of state pension.

This means that self-employed people with low earnings might be able to buy extra state pension potentially worth £77,400 over 20 years for only £1,794.

Alice Guy, Head of Pensions & Savings, interactive investor, says: “The extension of the national insurance deadline is amazing news for anyone with gaps in their national insurance record and that often includes self-employed people, and anyone who’s taken time out to care for loved ones.

“The good news is that it may be cheaper for some lower paid self-employed people to boost their state pension as it only costs £179 for someone paying class 2 contributions to buy an extra year of state pension. You might be entitled to pay voluntary class 2 contributions if you’ve been self-employed but earnings below the small profits threshold, currently £6,725. You can phone the DWP helpline to find out how much it would cost to make voluntary contributions.

“Self employed people often struggle to save enough for retirement as they don’t have access to a workplace pension and can face periods with a lower income when they can’t afford to pay into a pension. So, it’s vital they keep an eye on their state pension and make sure they receive the maximum possible.

You’ll make the money back as long as you get your pension for three years. Anything after that would be profit, making it a worthwhile investment as this £824.20 outlay would amount to £5,500 over a typical 20-year retirement.

If you purchase back five years of NI for £4,121, that will boost your retirement pot by £27,500 - a staggering return on investment of nearly 600%.

That’s a pretty good return on the initial investment, especially if you’ve got the extra cash and were thinking of investing it in something else.

Currently, men born after 5 April 1951 and women born after 5 April 1953 can pay to plug gaps in their National Insurance record going back to 2006 thanks to the “transitional arrangements” between old and new state pensions.

But from 5 April 2023, workers will only be able to buy back missing contributions from the past six years. So if you have any shortfalls between 2006/2007 and 2016/2017, now is a good opportunity to improve how much you will receive in retirement.

Steve Webb, former pensions minister and partner at consultant Lane, Clark and Peacock, said: “For those who can benefit, investing in state pension top-ups can generate a better ‘rate of return’ than almost any other way of using savings. Someone with 10 missing years could pay out a little over £8,000 to fix the gaps but see a boost of £55,000 in state pension over a typical 20-year retirement.”

Right now, you have until 5 April 2025 to buy voluntary National Insurance credits to plug any gaps between April 2006 and 2016. After that, you can only plug gaps going back six years.

“Under normal rules, it is only possible to fill gaps in your NI record up to six years after the year in question. After that point, the year becomes a permanent gap in your NI record and could affect your ability to build up a full state pension.

It is worth noting that there are exceptions to this, say if you contracted out for example. If you contracted out of a state pension then you may not be entitled to a full state pension even with 35 years’ National Insurance contributions.

Things to check before purchasing National Insurance credits

The full state pension is currently £185.15 a week, or £9,627.80 a year. You need 35 years of National Insurance contributions to qualify for the full state pension, and 10 to qualify for any state pension. Any fewer than that, and you won’t receive any.

But people often have to take breaks from work. Whether it’s due to illness, parenthood, travelling or taking care of someone, it’s normal to have gaps in your employment record.

You can use the government’s State Pension forecast calculator to check if you have gaps in your state pension. This will give you a summary of how much you’re set to receive weekly according to your current and projected contribution level. You can check your National Insurance record if you’re already at state pension age.

After that, check if you qualify for any benefits during your time out which would make you entitled to a voluntary National Insurance credit, such as Child Benefit or Jobseekers Allowance.

“Buying voluntary National Insurance credits is a cost-effective way of boosting your retirement income but it’s important to speak to the Department for Work and Pensions (DWP) before handing over any cash as they will be able to help you work out if you can plug the gaps in another way – such as through backdated benefit claims,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

“If you were contracted out of the state second pension at any point then this could also affect your state pension entitlement but buying voluntary credits may not boost your income – often when you contracted out your employer would boost your workplace pension contribution so you benefited from a higher workplace pension instead.”

“A final point before deciding to buy voluntary National Insurance is to think about how many more years you are likely to work,” adds Morrissey. “You may have some gaps earlier in your career but if you continue to work then you may still be able to accumulate enough years to get the full amount.”

A series of changes to pensions are set to take effect this month and could alter how much money you receive in your state pension.

As well as reinstating the triple lock, there will be changes to a range of pensioner payments, including the largest-ever increase to the state pension.

The changes, implemented at the start of the new tax year, come after the government announced it would delay the increase to the state pension age to 68.

You also have until 31 July to buy National Insurance credits to boost your state pension - extended from the previous deadline on 6 April 2023.

With the changes set to kick in at the start of the new tax year, it is vital to understand what the changes mean for you and your pension. Here’s our rundown of everything you need to know about the changes coming this month.

1. New state pension - Biggest ever state pension rise

A 10.1% rise in payments is on its way this month for those receiving the new state pension.

It is currently worth £185.15 a week, but this will rise to £203.85 on 10 April. This is the biggest-ever increase to the state pension.

For the first time, the amount received by a pensioner on the full new state pension will exceed £10,000.

This comes as a result of the return of the triple lock, which was temporarily halted last year.

The triple lock ensures the state pension rises each by whichever is highest: 2.5%, inflation or average earnings.

This year, the payout is going up with inflation, which has been running at a 40-year high.

People are eligible for this type of state pension if they are a woman born on or after 6 April 1953, or a man born on or after 6 April 1951. If you haven’t reached state pension age yet, you’ll be entitled to the new state pension when you retire.

2. Basic state pension increase

If you retired before April 2016, you may be receiving the basic state pension. This is an older-style pension that the government pays to men born before 6 April 1951 and women born before 6 April 1953.

Under the upcoming changes, a basic state pension recipient will get £8,122 a year - £156.20 a week. That’s an increase of just less than £15 per week from the previous rate of £156.20.

Pension Credit rates will also rise to £201.05 for a single person and £306.85 for a couple.

Both of these rises also come as a result of the triple lock, with high inflation leading to increases for both.

3. Married woman’s pension

The next change relates to the married woman’s pension, a type of basic state pension. Under the old system, women could derive payments from their spouse or civil partner’s National Insurance contributions. The sum is worth 60% of the basic state pension rate.

It goes up every April in parallel with the basic state pension. This means it will rise from £85 a week to £93.60 next month.

4. Over 80 pension

As the name suggests, this is a state payment for people aged 80 or over. To qualify, they must either get a basic state pension of less than £85 a week, or no state pension at all.

It’s currently worth £85 a week. For the 2023/24 tax year, the amount will rise to £93.60 a week.

5. Additional state pension

The additional state pension (also known as the second state pension or SERPs) is also protected by the triple lock, and will soar by 10.1% on 6 April. It is a top-up that you could get in addition to the basic state pension.

How much a person gets from the additional state pension usually depends on how long they paid National Insurance for, their earnings and whether or not they were contracted out. It’s also possible to inherit additional state pension from your partner.

The maximum sum people can receive will increase from £185.90 a week to £204.68 a week.

Becky O’Connor, director at PensionBee, said the upcoming increases will be welcomed by millions of people who have been “experiencing daily life becoming rapidly unaffordable over the last year.”

She said: “Last year, pensioners were denied a rise in line with higher living costs as the government suspended the triple lock, before reinstating it for this year. So this rise is overdue and will come as a huge relief to those struggling to pay the bills on their current pension.

To find out how other government benefits will change on 6 April, check out this handy list on the government website.

More rises possible

Current forecasts suggest that inflation could come down, but is still expected to be relatively high in September - the month which any changes to the state pension are benchmarked against. Inflation and wage data for the month are used by the government to shape their decisions for the following April.

As such, PensionBee’s O’Connor said more rises to the state pension can be expected next year, but the government may decide to hold off on any further bump-ups due to the expected slump in inflation figures.

She said: “We could see a rise in the State Pension next year of around 4 or 5%, based on OBR inflation forecasts, still higher than the long-run average of between 2.5% and 3% a year.

Additional contributions Tom Higgins

Some argue stamp duty is the worst tax in Britain, but for me, the High Income Child Benefit Charge trumps it.

For the parents among you forced to complete a tax return, you know exactly what I am talking about, here’s the deal:

• Parents or carers receive £21.80 a week for their first child and £14.80 for additional children. It’s not much, but I'm pretty sure amid the cost of living crisis, it’s certainly needed to keep up with 16% food inflation.
• Every parent with a child under the age 16 can get a child benefit payment - as long as you sign up to it - which you should as it provides you with valuable national insurance credits that count towards a state pension.

OK, it sounds simple, but little is simple or fair when it comes to tax - and in this case, it really isn’t fair.

Thousands of parents are now forced to complete a self-assessment tax return to declare their earnings and ‘give’ some of the money back.

If you or your partner earn more than £50k, you have to give some of it back in tax payments, known as the High Income Child Benefit Charge, by completing a tax return. It only takes one parent earning over £50k to trigger the need to complete a tax return. HMRC charges you 1% for every £100 of earning between £50k - £60k.

And if you or your partner earn over £60k? Well, you have to give it all back in tax charges equivalent to the full amount you received in payments.

Let's say couple A has one person who earns £60k and the other earns £30k - The combined income is £80,000. The higher earner will have to complete a tax return and the household will not benefit from child benefit, because essentially the tax charge will eliminate it.

But now, let's look at couple B. They both earn £45k each - the combined income is £90k. It’s higher than couple A, but because neither are above the threshold, guess what? No High Income Child Benefit Charge is due. They can keep it all, despite being £10k better-off.

And if couple C has one person earning £60 and the other earning nothing, they too must pay the charge that cancels out the benefit, despite having a much lower combined income. Couple B are £30k better-off.

Doesn't seem very fair, does it? It is penalising middle earners and taking away from households in need of this payment. While it might be a high income charge, it’s poorly thought out and executed terribly. I know, because the parents I speak to still don’t understand how it works a whole 10 years since it was introduced.

Apart from this, there’s also a problem with families being forced into completing a complex tax return and let's face it, it’s not an easy task for most of us.

Worse still, HMRC has been slapping penalties running into thousands for those who fail to complete a tax return. I’m all for doing things by the book and of course, if you claim you should declare your income regardless of how you feel about the charge, but the fact is, it has caught people out and HMRC didn’t exactly make a song and dance about it when it introduced the new complicated rules in 2013. And I doubt ‘sleepless nights’ counts as a ‘reasonable excuse’ in the eyes of HMRC for not completing a tax return on time (or maybe it does, I couldn't find a list that could excuse me from a penalty).

Women missing out on state pension benefits

You might be thinking, if you have to ‘give it back’ why bother signing up to it? And that’s exactly what thousands of women have done, decided not to bother with it.

But this creates another serious problem. Any parent taking time out of work to bring up a child should sign up to it because it provides you with valuable National Insurance credits that count towards building a state pension. Again, the government doesn’t shout about this, but it's a big problem that massively contributes to the gender pensions gap and leaves women vulnerable when they retire.

According to research from Royal London, around 100,000 women are missing out on as much as £20,000 state pension benefits by not applying for child benefit.

It is a benefit that mums (and some dads) should indeed sign up to. And for working parents who do not need the national Insurance credits, these can be passed onto grandparents if they are taking on childcare duties.

It is possible to simply sign up to it to protect your National Insurance credits - tick a box to say no to payments or call HMRC. This also means you could be excused from having to go through a self-assessment headache.

At a time of the cost of living crisis, a time when childcare costs are unaffordable (and outstrip average monthly mortgage costs) and gender pay gap - why keep such a charge to families bringing up children, who will contribute to the economy and will possibly pay the pensions of workers today?

I’m not expecting a solution any time soon and I doubt the government will remove this complicated and pointless charge - especially now when families are struggling to keep up with the costs of living crisis.

Petitions around it have failed, but for now - I urge all parents to sign up and get your valuable National Insurance credits in the bag. Oh, don't forget your tax return - you have until 31 January to complete one.

The pensions triple lock is here to stay, meaning pension will rise in line with inflation in the new tax year, chancellor Jeremey Hunt said in his Autumn Statement this week.

In its 2019 manifesto the Conservative Party promised to uphold the triple lock, which ensures the state pension is increased each year by either the rate of inflation, the rise in average earnings or 2.5% – whichever is higher. With inflation rising rapidly, the future of triple lock has been questioned over the years.

On 17 November chancellor Jeremy Hunt confirmed the party was keeping its promise and increasing state pensions in line with last month’s inflation figure of 10.1%. But even this figure is outdated now; the latest data from the Office for National Statistics showed UK inflation is running at a 41-year high of 11.1%.

So what does this mean for pensioners, and how much will the state pension rise by?

Pensions triple lock reinstated from April 2023

Much to the dismay of many pensioners, in April of this year the government suspended the state pension triple lock due to the impact of the pandemic, and increased the state pension by 3.1% instead of 8.3%, the rate inflation was running at the time.

There had been reports the government was considering scrapping the triple lock because of the cost to public finances, but it has now been confirmed retirees are getting a 10.1% increase to their state pension from April, which translates into an £870 increase a year. That’s the biggest ever cash increase to the state pension. It takes the annual pension to £10,600.20.

Pension credit, for pensioners on the lowest incomes, will also increase by 10.1%, worth up to £1,470 for a couple and £960 for a single pensioner. Finally, pensioners will receive a one-off £300 cost of living payment.

But the increase won’t come into effect until April 2023, “so there is a tough winter ahead”, says Helen Morrissey, senior pensions analyst at Hargreaves Lansdown.

“The reinstatement of the triple lock after its suspension last year will cool some of the discussion around its long-term viability for a while, but with a review of state pension age due to be published soon, now is the time to carry out a comprehensive review of the state pension to ensure it best helps those who need it most, both now and into the future,” Morrissey added.

However, pension increases coupled with tax freezes on income tax and national insurance might push pensioners over these thresholds and result in them paying more tax. Inflation is still on the rise, too, which will mean pensioners will continue to feel a squeeze on their finances.

A relatively minor change put forward by Kwasi Kwarteng in his now-defunct mini-Budget was a proposed adjustment to the IR35 tax rule.

HMRC bought in the IR35 tax rule in 1999 aiming to clamp down on individuals – mainly contractors and freelancers – who work in a similar manner to an employee, but under the structure of a limited company.

By working through a limited company it’s possible for individuals to lower their tax burden as they don’t have to pay national insurance (NI) or income tax. Initially, the burden fell on the employee to assess whether they fell under the IR35 tax rule.

However, that changed in 2017 when the government made public sector employers responsible for determining contractors’ IR35 status. In 2021, this was extended to employers in the private sector.

IR35 tax rule changes are being scrapped

Kwarteng wanted to reduce the burden on employers as part of his growth plan. He wanted to go back to the old system where employees were responsible for managing their own tax positions.

Jeremy Hunt has decided to reverse this decision. The changes brought in last year will remain in place and bring in an extra £2bn a year in tax revenue, according to Treasury projections.

The decision to retain this piece of burdensome regulation has been criticised by those who are affected.

Dave Chaplin, CEO of tax compliance firm IR35 Shield, said: "Repealing off-payroll would have returned an essential level of certainty to contract transactions in the market economy, leading to economic growth. Instead, off-payroll will continue to cause significant harm to the self-employed, major businesses, the government, and the economy.”

Rule change will lead to more tax collection

The IR35 tax rule is one of the most contentious pieces of regulation the government has introduced in recent years.

Put simply, the rules define contractors’ employment status based on a set of principles such as working for a single employer or having little discretion about when and where they work.

Employees that are deemed to fall within the scope of IR35 (and thus qualify as being employed) have to pay employment taxes – income tax and national insurance – through PAYE like all other employees.

Campaigners argue that companies have reacted by pushing all contractors into the scope of the rules – lumping them with higher taxes – rather than risk falling foul of HMRC.

And companies are right to be worried: HMRC has become quite aggressive when policing the IR35 tax rule. That could be because some estimates suggest less than 10% of contractors pay the right amount of tax.

Now Hunt has scrapped Kwarteng’s proposed changes, it looks as if the fight between contractors and HMRC will continue.

Last week Chancellor Kwasi Kwarteng announced a package of tax cuts aimed at getting the economy going. So what does it all mean for your finances? The big news is that income tax is being cut. From next April, the basic rate of income tax will fall from 20% to 19%. According to the government this will mean 31 million people will save £170 a year on tax.

On top of this the 45% additional rate of income tax will be abolished in April 2023. This is paid by anyone earning more than £150,000 a year. Getting rid of it will save someone with an annual salary of £200,000 almost £3,000 a year.

The Chancellor also announced that the 1.25% rise in National Insurance due to take effect in November will not go ahead. This is expected to save nearly 28 million people an average of £330 per year, says the government. However, “the impact varies considerably depending on what you earn, as there are weekly thresholds for National Insurance”, says Kevin Peachey on BBC News.

Who is saving what?

The upshot is that someone earning £20,000 will save around £93 a year, but someone with an annual salary of £100,000 will be £1,093 better off.

Combine the income-tax cuts with the scrapping of the National Insurance rise and someone with a £20,000 annual salary will be about £167 better off a year. Earners on £60,000 a year will save around £969 annually and anyone earning £100,000 a year will save £1,460, according to figures from accountants EY.

However, the Personal Allowance – the amount you can earn before you start paying income tax – remains frozen at £12,570. The level at which you start paying the higher rate of income tax is also static at £50,271. Both are set to remain the same until the 2025/26 tax year.

Research by the Centre for Economics and Business Research (CEBR) for The Mail on Sunday estimates that the frozen tax brackets will mean “nearly five million lower-paid workers who currently pay no income tax will be dragged into the net over the next four years”, says Patrick Tooher in The Mail on Sunday. “Another 3.8 million taxpayers will be pulled into the 40% band as wages rise.”

This is predicted to mean an extra £46bn will be paid in income tax. “It means the haul from the frozen allowances will offset the Chancellor’s giveaways and has provoked accusations of robbing Peter to pay Paul.”

Stamp duty cut

The other key measure in Kwarteng’s speech is a cut in stamp duty in England and Northern Ireland. My colleague Merryn Somerset Webb makes an argument for abolishing stamp duty, but for now the threshold at which it is payable has been doubled from £125,000 to £250,000. And first-time buyers won’t pay stamp duty on property worth less than £425,000 (up from £300,000). They will also pay a discounted rate of stamp duty up to £625,000, instead of the previous £500,000. You can use our stamp duty calculator to figure out how much you’ll be paying.

As a result, the stamp duty bill on an average £312,000 home will fall from £5,600 to £3,100, a drop of 44%. However, many experts don’t believe the stamp-duty cut will stop big problems hitting the property market. In fact, the Budget could have made things a worse. A cut to stamp duty could stoke demand and push house prices up even further at a time when a mortgage affordability crisis is hitting the market.

What rising rates mean for your mortgage

In an effort to tackle inflation the Bank of England increased the base rate to 2.25% last week. But the plunging pound after the budget could lead to further interest-rate hikes very soon.

Rising rates are having a devastating impact on mortgages, with many homeowners finding that when their low-rate deals expire they are having to pay at least double the interest on a new deal. The average two-year fix was 1.39% in December but 3.51% by August, according to the Bank of England. “It’s not uncommon for borrowers’ payments to rise £500 to £1,000 a month,” says Martin Stewart, founder of mortgage broker London Money, in The Times. “When you go from mortgage rates of 1% to 3% in eight months, that’s a problem for people.”

Estate agency Hamptons estimates that if the base rate reaches 3%, someone buying a £295,750 property with a 25% deposit on a two-year deal would see monthly payments jump by £100 a

month, says Rachel Mortimer in The Telegraph. In short, what you save in stamp duty you may well soon hand over to your mortgage lender.

Today’s mini-Budget was all about taxes. The new chancellor, Kwasi Karteng, announced that the government will scrap the 45p top rate of income tax, leaving a top band of 40p. The move took many by surprise and was one of the biggest treats handed out by the chancellor.

What else did the chancellor announce on taxes?

Changes to income tax

Apart from abolishing the 45% income-tax band, the chancellor also announced a cut in the basic rate of income tax. From April 2023, the basic rate will be cut by a penny in the pound to 19%.

“The decision to scrap the 45p rate of income tax, which affects 629,000 people who earn more than £150,000 a year, is potentially politically explosive,” says The Times.

It will stir controversy with Labour who will argue that it benefits the rich when many Britons are grappling with a cost of living crisis.

However, the Tories argue that it will foster greater investment in the UK.

National Insurance

The chancellor reiterated changes to National Insurance that were announced on Thursday ahead of the mini-Budget.

The 1.25% percentage-point increase in National Insurance contributions, introduced by former chancellor Rishi Sunak, will be reversed on 6 November.

The government will also cancel the planned health and social care levy, a separate tax which was expected to come into force April 2023.

Stamp duty

As widely anticipated, the chancellor announced changes to stamp duty. He increased the threshold at which home-buyers must pay stamp duty from £125,000 to £250,000 and onwards.

First-time buyers will only start paying stamp duty on properties valued at more than £425,000, up from the previous threshold of £300,000.

And in more good news, the value of property on which first-time buyers can claim tax relief increased from £500,000 to £625,000.

Corporation tax and investment zones

Kwarteng confirmed that he is scrapping next year’s planned rise in corporation tax, which was due to rise to 25%. Corporation tax will remain at 19%.

He estimates the move will put roughly £19bn back into the economy and will leave the UK with one of the lowest corporation tax rates in the G20.

The government will also be setting up new investment zones across the UK, which will benefit from lower taxes, simpler planning regimes, increased funding, zero-rate NI employer contributions for certain employees, and stamp duty land tax relief.

VCTs, EIS and SEIS

The government announced that Venture Capital Trusts (VCT), the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) will be protected beyond 2025.

EIS is an investment scheme which allows private investors to generate tax savings by investing in growth businesses.

The amount of money businesses can raise via the SEIS rose from £150,000 to £250,000 and the maximum age of the business raising capital increased to three years.

What does this mean for you?

For pensions, the budget is both good and bad news.

As Helen Morrissey, senior pensions analyst at Hargreaves Lansdown, points out: “Both annuities and drawdown are subject to income tax, so this will be a shot in the arm for pensioners.”

She adds that while the 1% cut may sound small it can generate decent savings, with someone on “£25,000 income paying over £125 less per year” and basic-rate taxpayers will be happy to pay less in taxes. She cautioned that these changes don’t kick in immediately.

“By that point, pensioners waiting for their state pension to be uprated with inflation may well be running on empty,” she said.

Tax relief for basic-rate taxpayers saving into their pensions is going to be less generous, she says, but pensions remain a very tax-efficient way to save.

“All contributions are completely tax free”, she adds. “The fact that workplace pensions receive tax relief and a contribution from your employer still make them incredibly powerful places to save for the future,”

Will the stamp duty cut drive house prices higher?

According to Rightmove the changes to stamp duty could increase UK house prices.

Rightmove’s housing expert Tim Bannister said: “Demand has been softening over the last few months but today’s announcement is likely to stimulate some more demand. If it does lead to a big jump in prospective buyers competing for the constrained number of properties for sale then it could lead to some unseasonal price rises over the next few months.”

But Bannister expects the increase in UK house prices to not be as drastic as those announced during the temporary stamp duty holiday in 2020 as the stamp duty change is permanent.

But Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, points out that the biggest issue with the UK housing market is lack of supply, as most agents only have 36 properties at hand, which she argues this mini-budget did not address.

“Higher prices coupled with higher mortgage rates are going to push properties further out of reach for millions of people, which could in itself end up scuppering sales. The property market is a delicate beast, and tinkering with tax incentives always risks,” she warns.

What could be more significant for house prices, however, could be the rise in interest rates. One of the principal reasons houses are so expensive is the years of ultra-low interest rates – if homebuyers are able borrow more money at lower rates, the price of houses goes up. But with interest rates now rising steadily, we could see house prices fall, with London leading the decline.

What does this mean for businesses?

For businesses the cut in corporation tax will be welcome.

“While the planned hike in corporation tax from 19% to 25% has been consigned to the bin, while 'Investment Zones' in England, with specific tax cuts and liberalised planning rules, have been announced. The case for making tax cuts now is that they could stimulate greater consumer spending and encourage more investment in UK businesses,” says Myron Jobson, senior analyst at Interactive Investor.

Many experts welcomed the changes to EIS and said it would benefit businesses.

Simon Emary, COO of Growthdeck, comments: “The Chancellor’s decision to back EIS and SEIS is a shot in the arm for growth businesses in the UK and for the economy overall.”“EIS has been a huge net positive for the economy and the tax base over the last 28 years. It has helped many thousands of businesses to grow and created a vast number of jobs.”

“Enabling SEIS to do more to get funding to smaller scale businesses is another big positive. A lot of people in the investment industry have long felt that its impact has been limited by the restrictive cap on the size of investment people can make through it. It’s good to see the government take a step toward improving that,” he added.

The 1.25% percentage-point increase in National Insurance contributions, introduced by former chancellor Rishi Sunak, will be reversed on 6 November, the government has confirmed.

The reversal was widely anticipated and follows on Liz Truss’ pledge to reduce the tax burden and promote economic growth.

The move was announced ahead of chancellor Kwasi Kwarteng’s mini-Budget on Friday (23 September).

It will, according to the Treasury, mean almost 28 million people would keep an extra £135 of their pay on average in 2022-2023, and an extra £330 on average in 2023-2024. The higher your salary, the more you’ll benefit. For example, someone earning £100,000 would save £91 a month, but someone earning £27,000 would only save £15 a month.

Meanwhile, 920,000 businesses could save almost £10,000 on average next year in payments.

Speaking ahead of Friday‘s mini-Budget, Chancellor Kwasi Kwarteng, said: “Cutting tax is crucial to this – and whether businesses re-invest 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 rise in National Insurance was made by former UK chancellor Rishi Sunak in April 2022 to fund health and social care services as the pandemic put a major hole in the Treasury’s finances.

However, the government will also cancel the planned health and social care levy, a separate tax which was expected to come into force April 2023 to replace this year’s National Insurance rise.

Funding for health and social care is now expected to be funded from general taxation.

The levy was expected to raise £13bn a year. Funding for healthcare and social care services will not change, according to the chancellor, ensuring the NHS remains protected through winter.

What is National Insurance?

National Insurance (NI) is a tax paid by employees and by the self-employed on their earnings, and by employers on their employees’ earnings.

It was introduced in 1911 to set up a fund for workers in need of medical treatment or for those who had lost their job. NI contributions do still count towards state pension eligibility, but it has effectively become a second tier of income tax.

The rate was due to return to 2021-2022 levels in April 2023.

The reversal is part of the current government’s pro-growth agenda, intended to foster greater innovation, provide more jobs, and ease the current cost-of-living crisis.

Also announced:

• 920,000 businesses will see a cut in NI bills, with 20,000 no longer paying NI due to the Employment Allowance, which rose in April 2022 from £4,000 to £5,000.
• Many small and medium-sized businesses (SMEs) will see cuts to their NI bills worth an average of £4,200 for small businesses and £21,700 for medium-sized firms who pay NI. The government estimates that 905,000 micro, small and medium-sized businesses will benefit from 2023-2024.
• Changes to NI thresholds in July 2022, which saw 2.2 million of the poorest people no longer having to pay NI, will be retained. The levy reversal and higher thresholds will result in average savings of more than £500 for 30 million people in 2023-2024.
• The chancellor is due to announce in Friday’s mini-Budget that a 1.25 percentage point increase to tax on dividends announced alongside the levy is due to be reversed in April 2023. The increase had been announced in April 2022. This is expected to generate savings of £345 a year for those who pay tax on dividends.

How will I save from the cut?

“The 1.25% reduction means that someone earning £50,000 a year would see an extra £40 in their pocket each month, equating to £467 extra annually. Whereas the average graduate earning £27,000 would see a miserly £15 extra a month or £180 a year,” said Shaun Moore, tax and financial planning expert at wealth manager Quilter.

He added that those who are earning £100,000 would see the biggest savings from the NI reversal, and would save £91 monthly or £1,092 annually.

Kwasi Kwarteng, the new chancellor of the exchequer, is delivering a “mini-Budget” tomorrow, Friday 23 September, packed with a series of tax cuts that are expected to affect everything from National Insurance to stamp duty to banker’s bonuses.

Prime minister Liz Truss has already promised several tax cuts throughout her leadership campaign with the goal of boosting economic growth. Take a look at what you can expect from the announcement.

National Insurance cuts

Truss repeatedly promised throughout her campaign to reverse the 1.25% hike in National Insurance implemented by then-chancellor Rishi Sunak back in April. A statement from the treasury released today (22 September) has confirmed it ahead of the official mini-Budget announcement.

The government will also cancel the planned health and social care levy, a separate tax which was expected to come into force April 2023. According to the government this will help nearly 28 million people across the country keep a larger portion of their salary.

The threshold at which workers begin to pay National Insurance, which was increased to £12,500 by Sunak after widespread calls for him to scrap the NI hike, is expected to remain the same.

A cut in stamp duty

There are also reports that suggest there are plans to also introduce a stamp duty holiday in order to stimulate the property market at a time of rising mortgage rates.

Stamp duty is a levy you pay when you purchase a property. You pay nothing on the first £125,000, 2% on the next £125,000, 5% on the next £675,000, 10% on the next £575,000 and 12% on anything above that.

First time buyers don’t pay stamp duty on the first £300,000 and then pay 5% on anything from £301,000 to £500,000.

However there are concerns it could do more harm than good.

Sarah Coles, personal finance expert at Hargreaves Lansdown, said: “Even if it does stimulate demand, it overlooks the fact that the real brakes on the property market is a severe shortage of supply. With an average of 36 properties on each agent’s books, we’re still close to an all-time low in the availability of property for sale. Driving demand without addressing supply would risk more buyers chasing a tiny number of properties, which would push prices up.

“By ramping up prices at a time of rising mortgage rates, the end result would be higher monthly mortgage costs, which would be increasingly unaffordable. And the Stamp Duty holiday wouldn’t help on this front. This in itself could be enough to put buyers off, and if it deters enough of them, it could end up having the opposite impact to the one that’s intended.”

The last time we saw a stamp duty holiday was during the pandemic in an attempt to boost economic growth — buyers paid no tax on the first £500,000 of a purchase. While this heated up the property market it also led to a mammoth increase in house prices.

However Truss believes the highest rate of stamp duty was preventing more transactions from taking place, so a source told The Times we can expect “radical” cuts to the levy. However, we think cuts to stamp duty aren’t enough. As my colleague Merryn Somerset Webb explains, we shouldn’t be cutting stamp duty, we should abolish stamp duty altogether.

Marriage tax allowance

Currently, married couples and those in civil partnerships are entitled to the marriage allowance, which lets one spouse or civil partner to transfer 10% (£1,250) of their personal allowance to the other, which means the latter pays less tax.

To be able to do so, either spouse has to earn below the personal allowance (£12,500) while the other has to pay income tax at the basic rate. This could lead to a £262 saving on income tax bill.

Kwarteng is expected to announce an extension to this tax relief by which couples could transfer their entire personal tax allowance to the other. This could save couples as much as £2,500, and would heavily benefit lower earners.

No increase to corporation tax and scrapping the cap on bankers’ bonuses

Truss has essentially confirmed she will not go ahead with the planned 1.25% increase in corporation tax, freezing it instead at 19%.

Kwarteng and Truss have also both proposed to scrap the cap on banker’s bonuses, which was introduced after the 2008 financial crisis to prevent bankers from making risky financial decisions to earn a higher bonus.

The aim is to help Britain “become more competitive” and to “help more investment flowing through the country”.

The pensions triple lock returns

The pensions triple lock was introduced in 2010 to guarantee that the state pension wouldn’t lose value in real terms and instead increase by the highest of average earnings, consumer price inflation, or 2.5%.

The government suspended the triple lock for 2022-2023 to avoid an increase to the state pension following the pandemic. Sunak confirmed the triple lock would return in 2023 and Truss has reiterated her commitment to the measure, even hinting at a 9%-10% increase in pensions next year.

Are you missing out on a valuable pensions tax perk that could save you hundreds of pounds? Research from Mercer, a consultant, suggests that a fifth of employees are failing to sign up for salary-sacrifice arrangements, even though these could be a more tax-efficient way to save for retirement.

In a traditional occupational-pension scheme, you make contributions to your savings out of your pay, claiming income-tax relief at your highest marginal rate of tax – up to 45% for the highest earners.

Salary-sacrifice schemes offer exactly the same tax relief, but require you to forego the proportion of your salary you would have paid into the pension scheme; instead, your employer then covers the cost of your contribution.

Exactly the same amount of cash ends up in your pension scheme either way, but the latter arrangement has one big advantage: there will be no national insurance contributions to pay on the salary you’ve sacrificed – that’s a saving of up to 13.25% on this cash. Your employer also makes a saving, since it doesn’t have to pay employers’ national insurance on this money. Normally, its contribution is 15.05% of salary.

These are valuable perks. Mercer says someone earning £40,000 a year and paying 6% of pay into their pension scheme would save £318 in national insurance contributions annually in a salary-sacrifice set-up. Their employer would save an additional £361 each year.

Not all employers currently offer salary-sacrifice arrangements, but given the tax advantages to them of doing so, take-up is increasing. The schemes don’t have to be used only for pensions. Other non-cash benefits, such as childcare vouchers, can also be offered in this way.

The two key downsides to salary sacrifice schemes

There are some potential disadvantages for employees to consider. By joining a salary-sacrifice scheme, you are lowering your salary. You’re not losing out financially because the reduction is only what you would have paid into your pension scheme, but the lower figure is the one that will be used for other important calculations.

One example is your life insurance. Many employers offer death-in-service benefits to the value of a multiple of your salary, so a lower salary means you’ll qualify for less cover. Your entitlement to certain state benefits, such as statutory maternity pay, could be reduced for the same reason.

Similarly, if you plan to apply for a mortgage in the near future, remember that banks and building societies will decide how much they are prepared to lend you partly on the basis of your earnings. So a reduced salary could decrease the size of the mortgage you can secure.

These considerations aside, however, salary-sacrifice schemes offer a good deal for the majority of employees given the national-insurance saving. If you have the option of joining such an arrangement, think hard before saying no – and if your employer doesn’t currently offer salary-sacrifice, it’s worth pointing out the tax advantages to them of putting one in place.

Rishi Sunak says that if he becomes prime minister he will cut taxes as soon as he “has gripped” inflation. That would be nice. Over the past 12 years of Conservative government, middle- and high-income-earning households have become “significantly worse off”, says The Times. In 2010, tax freedom day (the day when you have earned enough to pay all your taxes) came on 30 May. This year it came on 8 June. You can thank the government for nine extra days working for the state (with, as far as I can see, no obvious improvement in the public services the state provides in return).

This is mostly about fiscal drag: if the threshold for paying the 40% rate of tax had risen in line with inflation since 2010, it would now be well over £58,000. The fact that it hasn’t will have cost those who pay it (an extra three million of them since 2010) £1,653 each. The threshold at which you lose your personal income tax allowance is currently £100,000. If it had gone up with inflation it would be just over £130,000. That bit of drag costs those who pay it more than £6,000.

A growing burden

I could go on. But you get the picture: the UK tax burden is now at a 70-year high, with taxes as a percentage of GDP at 33.8% (the last time that number was higher was in 1951). As the chancellor of the exchequer until just over a week ago, Sunak is very, very far from innocent in all this. He calls himself an instinctive tax cutter. But if that is so, he was clearly working hard to suppress his true self during his time in the Treasury.

Sunak oversaw three big tax rises. He raised corporation tax from 19% to 25% with effect from next April. He increased national insurance rates by 1.25 percentage points for all (and dividend taxes by the same amount, to catch people who mostly get paid in dividends through their own companies). A national insurance hike is an effective rise in income tax, whether you want to call it that or not. And he froze all allowances again – with inflation heading for 10% this represents another huge tax hike through fiscal drag.

Collectively, those measures should raise £50bn a year in extra revenue by 2024-2025, Sunak reckons. And the tax burden by then? A depressing 36.6%.

Time to change

There is some reason to hold off on tax cuts right now – and particularly to hold off on slashing corporation tax back to 15% as Sunak’s rivals seem to want to (all the chopping and changing is a nightmare for companies). It is a complicated and expensive time. But Sunak needs to be careful about how he looks at the numbers – and at those who pay the taxes his party demands.

He warns that the idea that tax cuts can work for the UK economy right now is nothing more than a “comforting fairy tale”. He also tells us that “it is hard to cut taxes when the demands on the state are growing” (public spending is forecast to hit 41.1% by 2026-2027).

But we do wonder if it might be better to look at this the other way around – and ask if perhaps taxes are too high because the state tries to do too much. We also wonder if the real fairy tale might be in the idea that the UK’s working population will put up with their tax freedom day extending any further into June. We may have our limits.

With the unfortunate exception of Rishi Sunak, who is boxed in by his record as chancellor, every candidate to take over from Boris Johnson as prime minister is promising spectacular cuts in tax. It is a little hard to work out what they have all been doing for the last couple of years while taxes were being raised to peacetime records, given how much they dislike them. But still, cynicism aside, it is refreshing to see that the Conservative Party still has some interest in lower taxes.

The trouble is, with an economy heading into recession and with huge demand for better public services, it does not sound very credible. We can’t cut national insurance, corporation tax, VAT, fuel duty or inheritance tax at the same time as spending record amounts of money.

With a recession looming, tax revenues will soon be going down and welfare spending up, putting even more pressure on the public finances. A winning candidate should choose one tax cut – and mean it. Halting the planned rise in corporation tax to 25% scheduled for next year is the best bet, for three reasons.

Hobbled competitiveness

First, it makes the UK uncompetitive globally. Corporation taxes have been steadily coming down around the world for the last decade, and the UK was quite rightly in the vanguard of that. In 1980, the average corporate tax rate was around 40%, according to figures from the Tax Foundation. By this year, it had fallen to 23%, and it is still coming down.

In the US, Donald Trump slashed corporate rates, and his successor has only partially reversed that. Sweden, Belgium and even France have all made significant cuts to their rates over the last few years. Over the last decade, the UK cut the rate by ten percentage points, and was set to bring it down even further, giving it one of the most competitive systems among the major developed countries.

Having left the EU and the single market, it was important to keep driving that down. After all, we need to make ourselves more attractive to global business, not less so. This is the worst possible moment to raise the tax rate businesses have to pay – and we will quickly pay a price for that as fewer companies decide to base themselves here.

Next, it will reduce investment. Firms don’t have many options when it comes to finding the money to pay for new product launches, extra manufacturing capacity, or setting up whole new units. They can try borrowing from the bank, although the answer is usually no, or they can raise capital from outside investors, although that is a lot of work. Usually they invest through retained earnings. If those are taxed more heavily, there will be less investment. Sunak did include a tax break for investment, but allowances are fiddly and hard to claim. They rarely work as well as the chancellor expects. The net result? Investment will be much lower than it otherwise would be – especially among small businesses.

The worst mistake

Finally, the Treasury gets the money anyway. Although it might come as a surprise to the people who constantly clamour for higher corporate taxes as if it were free money, companies don’t actually hold onto any cash. It all gets used one way or another, either to pay higher dividends to the shareholders or else higher wages to the directors or staff (and even if it is deposited in the bank, it will be lent out to someone else). When it is paid out, it will be taxed, and usually at a higher rate as well. One way or another the money finds its way into the economy and gets taxed. It just depends at what point, and at what rate.

The Johnson-Sunak government made lots of mistakes on tax policy. It was too quick to put taxes up, it didn’t put any serious thought into what to do with the money and it showed no real interest in controlling public spending. But of all of them the rise in corporation tax was by far the worst. It was too sudden a jump, taking the tax rate up by a third in a single step, it hit the sector we most need to grow, and it made the UK less competitive against its key rivals. The Tory leadership candidates are all keen on tax cuts. Make it that one.

Inflation in the UK is running at 6.2% a year (if you use the consumer price index – CPI), or as much as 8.3% (judged by the old retail price index-based measure that used to form the basis of the Bank of England’s inflation target). Unfortunately, this month the cost of living squeeze is only set to get worse. Here’s what’s changing – and what you can do to lessen the impact.

The deep freeze on allowances

The personal allowance (the level of earnings at which you start paying income tax) will be held at £12,570 until 2026, while the higher-rate income tax threshold will be frozen at £50,270. This is “probably the biggest change coming in from 6 April”, says AJ Bell. Usually these thresholds would increase in line with inflation “to offer some protection to taxpayers”, but it’s proved an irresistible stealth tax for

the chancellor.

Similarly, on the asset taxation front, the capital gains tax (CGT) allowance remains frozen at £12,300 until 2026, while the inheritance tax threshold is also staying at £325,000, which will “start to bite into estates” that grow in value over the next four years. While the chancellor did announce plans to cut income tax from 20% to 19%, this is little comfort as it’s not due until 2024.

The health and social care levy

The threshold at which national insurance (NI) starts to be paid will rise to £9,880 from £9,568 in April, and then to £12,570 (matching the personal allowance) in July. But from 6 April most workers will also start to pay the health and social care levy, which is an increase of 1.25 percentage points on NI contributions, driving rates from 12% on earnings up to £50,270 and 2% on anything above that to 13.25% and 3.25% respectively. Taking the changes to the NI threshold from July into account, a worker on £30,000 will be better off overall, paying £2,309 a year in NI contributions, down £143 from the current £2,452.

However, someone earning £50,000 will pay £4,959, up £107 from their current contribution of £4,852.

Investors should note that dividend tax is rising along with the NI increase, which means basic-rate taxpayers pay 8.75% on dividend income; higher-rate taxpayers 33.75%; and additional rate 39.35%.

State pensions and energy prices

Households already struggling with rising costs will also have to deal with an increase in the energy price cap, which is a regulatory cap on the amount per unit of gas and electricity that utility companies can charge. Based on average household usage, it is rising by an eye-watering 54%, from £1,277 to £1,971 from 1 April, although of course that will vary depending on your individual usage.

The regulator is playing catch-up with soaring energy prices, and there’s no guarantee that October (the next time the price cap changes) won’t see another significant increase.

As for pensions, the state pension will rise with the rate of inflation (as measured by CPI), but that’s based on the figure from September 2021, which means an increase of just 3.1%. Meanwhile, the pensions lifetime allowance (LTA) – the total pension pot you can accumulate over a lifetime before being taxed at 55% on the excess – will be frozen at £1,073,100 for another four years.

Practical solutions

There are few government measures to help, although do check your council tax band – houses in bands A to D in England will get a £150 rebate on their council tax bills in April. If you pay by direct debit, this will be paid into your account directly. Otherwise, contact your council. Also ensure you use your individual savings account and pension allowances this year – at least those shield you from CGT and dividend taxes.

SEE ALSO:

The UK jobs market is still red hot – but will it last

There is less than a week to go until national insurance contributions increase, but there is still time to take action to mitigate the tax rise. In last week’s spring statement, chancellor of the exchequer Rishi Sunak refused to backtrack on his plans for a 1.25% increase in national insurance. But salary sacrifice schemes, offered by many employers, are a great way to reduce the impact of the increase, which comes into effect from 6 April.

In a salary sacrifice scheme, you give up some of your salary in return for your employer giving you a benefit of the same value. The most obvious example is a contribution to your pension plan, but some employers also offer benefits ranging from childcare support to the cycle-to-work scheme. In many cases, these benefits are not taxable. As a result, by entering into a salary sacrifice scheme, you are reducing the amount of income on which you will be taxed.

This is particularly valuable as national insurance contributions go up. For someone earning £50,000 a year, the 1.25% national insurance increase will add around £200 to their annual bill for the 2022-2023 tax year. However, by using salary sacrifice to increase their pension contributions by £100 a month, they could wipe out around £160 of that increase, without reducing the total value of their benefits at all.

Not all employers offer salary sacrifice and those that do may offer you the option of making pension contributions in the traditional way, rather than through this route. But where you have the option of joining a salary sacrifice arrangement, the national insurance increase boosts the case for doing so.

There could also be an income-tax benefit. Before the spring statement, the chancellor had announced that income-tax thresholds would be frozen until at least 2024. So as your salary rises each year, there is an increased chance of you moving into a new income-tax band and paying higher rates. Salary sacrifice schemes could mitigate this impact.

Do the sums before you commit

There are some reasons to tread carefully. Many employers offer staff free life insurance, but this is usually calculated as a multiple of your salary; by reducing that salary in a sacrifice scheme, you are therefore reducing the amount of life insurance you’re getting through work.

Another potential issue is reduced mortgage affordability. Lenders making calculations about how much they are prepared to lend you will typically take account of your salary, so by sacrificing some of it, you may be limiting the amount you can borrow. Also, you may need to check what salary sacrifice might mean for benefits such as statutory maternity pay, which is also calculated with reference to your salary.

Still, it is worth doing the sums. If your employer offers a salary sacrifice scheme, it will be able to give you a detailed breakdown of what joining will mean for your take-home pay and your tax bill. You can then make an informed decision about joining.

The good news is that employers have an incentive to offer these schemes. Their tax bills are rising too, since employers’ national insurance contributions are also increasing on 6 April, so they’re looking for ways to save money. Some may even choose to share their national insurance savings with staff who join such schemes.

If the chancellor wasn’t worried about his spring statement on Tuesday night, I think we can be pretty sure that he was very worried indeed by 7.01am on Wednesday morning. At 7am, the Office for National Statistics released the UK’s latest inflation numbers.

Thanks mostly to rising energy and fuel prices, UK inflation (as measured by the consumer price index) hit 6.2%, a 30-year high. The retail price index (RPI), the old measure, is rising at 8.2%. A reminder: the Bank of England inflation target (hitting it is its main job) is 2%. The worst, as Rishi Sunak knows, is yet to come.

There is a view in the UK that there are elements of Brexit in this. There aren’t (EU-wide inflation is also 6.2%). This is about war (which always brings inflation) turboboosting an inflationary environment created by the money printing and supply disruptions of the pandemic (we spent £400bn on pandemic policy costs) meeting the energy supply constraints created by the drive to net zero.

Energy prices look set to rise by well over 10% this month and food prices have surged, too. The Bank of England now expects inflation to peak at 8%-plus. That makes double figures almost a given.

A genuine crisis

Here, then, is a genuine cost of living crisis. Sunak, who has presided over a rise in the UK tax burden equivalent to 2% of GDP, would have eaten breakfast over a pile of newspapers jammed with demands about the many somethings to be done. He was told to raise the National Insurance (NI) threshold to protect lower earners; to delay or abolish the pending 1.25 percentage point rise in NI; to postpone the freezing of income tax allowances (a tax rise by any other name); to abolish the £70 about to hit household bills to pay for compensating energy companies that have gone bust; to bring forward the rise in benefits to reflect the sharp rise in inflation (low income households cannot be expected to cope with RPI at 8.2% without some immediate assistance); and to reduce fuel duty. He could, said almost everyone, one way or another, make the pain go away.

But of course in the end he could not. Those who wanted the NI threshold to rise got what they wanted – and it is a neat way to protect some lower earners. The fuel duty cut will please some, too – but given the volatility in energy prices, it is more symbolic than anything else. Overall he had no real rabbits in his hat. And with growth likely to slow into rising inflation, he is unlikely to find any.

In short, the government cannot protect you from this financial mess. You have to do that yourself. So stay in work if you can. In times of inflation you need as many income streams as possible, and if we are entering a period in which some power returns to labour, the returns to capital will surely fall – so best to have earned income as well as unearned. When it comes to the latter, choose wisely.

Few fund managers have been preparing for inflation (the transitory story was far too easy for them to work with). Look for those that have (our podcast this week with Charlotte Yonge of Troy Asset Management is a useful start) – and make sure you own some of them. It isn’t too late to prepare. Think Personal Assets Trust, Capital Gearing, Ruffer, BH Macro and JP Morgan Core Real Assets for starters.

Rishi Sunak’s Spring Statement might be described as the “jam tomorrow” Budget. Analysis from the Office for Budget Responsibility (OBR) lays bare the effect of the cost of living crisis – real household disposable incomes will fall by 2.2% on average in 2022-2023, “the largest fall in a single financial year since records began in 1956-1957”.

But the chancellor’s most eye-catching offers of support will not be immediately available. Even Sunak’s marquee announcement, an increase in the National Insurance threshold to counteract higher National Insurance rates, doesn’t take effect until three months into the new financial year. And the first cut in the basic rate of income tax in 16 years won’t be implemented until 2024 (assuming it actually happens).

In the meantime, the chancellor will be hoping he has done enough to bolster the Conservative Party’s tax-cutting credentials, potentially in time for a general election once that tax cut comes into force. That might be a tough sell, given that the OBR’s analysis suggests Sunak has so far announced tax cuts that amount to just a sixth of the value of the tax rises he has announced since moving into 11 Downing Street.

Personal tax winners and losers

Having spent months defending his plans to raise National Insurance contributions in order to fund health and social care, the chancellor pulled a rabbit out of the hat in the Spring Statement to have his cake while eating it. National Insurance rates will still increase by 1.25 percentage points from 6 April – but low and middle earners will be cushioned from the blow with a higher National Insurance threshold.

By raising the level of income at which people begin paying National Insurance contributions to £12,570 – rather than £9,880 previously planned – Sunak will leave around 70% of people better off in 2022-2023, analysis from Hargreaves Lansdown suggests, even though the increase doesn’t come into effect until July.

The tipping point, it calculates, comes for those earning between £40,000 and £50,000. For someone earning £20,000, the effect of the higher threshold will cancel out the increased contribution rate next year, ensuring they end up £267 better off than in 2021-2022. By contrast, someone earning £50,000 will be £108 worse off.

Further out, the chancellor is promising an income tax cut in 2024, when the basic rate will fall from 20% to 19%. But it’s worth remembering the chancellor said last year that income tax thresholds would be frozen until 2026; “fiscal drag” will bring more people within the reach of the higher rate of income tax, which is staying at 40%. That will undermine their basic rate of income tax savings.

Cheaper fuel

With a sharp increase in the oil price following Russia’s invasion of Ukraine, petrol and diesel prices have spiked sharply higher in recent weeks. The chancellor offered some help with only the second cut in fuel duty in the past 20 years; the reduction is 5p a litre, introduced immediately, and available for 12 months.

The RAC says the reduction will reduce the cost of filling up a typical family car by around £3.30. Motorists will welcome that, though with petrol and diesel prices up by around 40p and 50p a litre over the past year, the reduction doesn’t go very far.

Cold comfort but help to go green

The chancellor resisted calls for further measures to help households with the soaring cost of gas and electricity bills. Sunak is allocating an additional £500m to the Household Support Fund, which provides local authorities in England with funds to support vulnerable households as they see fit – but that is it.

The chancellor points out that his Energy Rebates scheme (announced in February) provides households with help via a combination of council tax rebates and discounts on electricity bills to be repaid over the next four years.

Still, there is some good news for homeowners looking to move to greener energy solutions. For the next five years, there will be no VAT to pay on products such as solar panels, electric heat pumps and insulation – currently a 5% VAT rate applies to such equipment.

No respite for pensioners

With the Office for National Statistics announcing just hours before the spring statement that inflation had risen to 6.2%, the suspension of the “triple lock” guarantee on state pensions became even more expensive for pensions.

But while inflation is expected to rise even higher in the months ahead, Sunak did not deviate from the plan to raise state pensions by only 3.1%, rather than in line with inflation, as the triple lock would normally ensure.

Still, the government has also confirmed the triple lock is not being dumped permanently – it will return in 2023.

Support for small businesses

A rise in the Employment Allowance will help small business owners who are worried about April’s rise in National Insurance rates, which apply to employers’ contributions as well as employees’. The allowance currently enables eligible employers to reduce their annual National Insurance liability by £4,000, but this will now increase to £5,000 on 6 April.

The relief is targeted at the smallest businesses – to be eligible, employers’ Class 1 National Insurance liabilities must have been less than £100,000 in the previous tax year. But for those who qualify, this is valuable support – the Federation of Small Business had previously calculated that higher National Insurance would cost the average small company more than £3,000 a year.

Tax reform ahead?

In line with his jam tomorrow theme, the chancellor announced plans to consult on an overhaul of the tax system to boost growth and productivity – he plans to announce the results of his review at the Budget later this year.

One target is simplification – there are now more than 1,000 tax reliefs and allowances, Sunak pointed out – but the government is making no promises.

And future reforms won’t necessarily save money. One big question mark concerns the future of pension tax reliefs. The income tax cut due in 2024 means basic-rate taxpayers will from then on receive even lower tax relief on private pension contributions than higher earners. Might that be an excuse for a revamp of the whole system to reduce its cost?

“When the facts change”, John Maynard Keynes is believed to have said, “I change my mind. What do you do?”

The answer from chancellor Rishi Sunak would seem to be: “just about anything so long as it cannot be described as a U-turn”.

The case for a U-turn is clear. In September, the government appeared to be faced with three crises. Firstly, the extravagant spending of the pandemic had resulted in record fiscal deficits (it had spent more than it took in in taxes – a lot more), threatening to push the national debt-to-GDP ratio through 100%.

Secondly, the media was clamouring for the funding of care for the elderly, deemed to be a “crisis” to be addressed at minimal cost to the recipients. Finally, the numbers on NHS waiting lists had grown from 2.3 million in 2009 and 4.4 million before the pandemic to over six million. The health secretary, Sajid Javid, was warning that they could reach 13 million.

Sunak duly announced a £12bn increase in National Insurance, raising it from a combined 25.8% of pay above £9,500 per year to 28.3%. This was to fund first a reduction in the NHS waiting lists, then social care.

In addition, personal tax allowances and the threshold for higher tax rates had been frozen until at least the 2025-2026 tax year, and the rate of corporation tax increased from 19% to 25%. The result was the highest tax burden for 71 years, according to the Taxpayers Alliance.

Believe it or not, the public finances are in better shape than you might think

Since September, much has changed. In February, Javid admitted that NHS waiting lists would go on rising till at least 2024. Since the extra funding would have no effect, why not postpone it until NHS management came up with a plan to justify it?

The number of elderly people living in care homes in the UK is nearly 500,000, equivalent to 4% of the population who are over 65, and 15% of the over-85s. Despite an ageing population, this number peaked at around 560,000 in the late 1990s so the central tenet of the “crisis,” that demand was and would rise remorselessly, is incorrect.

The population is ageing but the elderly are more able to look after themselves than ever before, helped by the growth of supported living (housing developments for the elderly), on-line monitoring and home visits. It is not obvious that care homes increase life expectancy of just two-and-a-half years on admission and the experience of the pandemic is unlikely to have increased demand. Was the “crisis” exaggerated?

Finally, the public finances are in better shape than the Office for Budget Responsibility (OBR) had forecast, with the 2021-2022 deficit now expected to undershoot by £20bn. This forecast was reduced in October from £234bn to £183bn and the 2025-2026 forecast from £74bn to £46bn. These are likely to be cut further.

As a result, current government debt is likely to emerge at around 95% of GDP, about 10% higher than before the pandemic. From here it is expected to fall, partly as the annual deficit falls but more due to inflation, to 83.5% next year and 80% in 2026-2027.

Despite much angst about the rising cost of servicing the national debt, inflation is eroding it rapidly. The yield on ten-year gilts is currently 1.7% and the rate of inflation is 6.2%. This means that the real burden of debt is being reduced at an annual rate of nearly £100bn.

Unsurprisingly, the falling deficit is not due to spending restraint but rising tax receipts. The OBR points to higher receipts from income tax (frozen allowances and thresholds), corporation tax (rising rates), and VAT (notably on petrol and domestic fuel), but there is more. Death duties are increasing at 20% a year, as are capital gains tax receipts, while customs duties are up 63% in the last year. Stamp duty receipts fell 19% in the pandemic year of 2020-2021 but are now soaring.

The chancellor should have ditched the National Insurance rise

This led economist Roger Bootle to argue that rescinding the announced increases in National Insurance “would be exactly the right thing to do. It makes no sense to be hitting the economy with such huge tax rises. There is no necessity for borrowing and debt to be brought down at precisely the pace that the Treasury seems to think necessary.”

But that would represent too much of a U-turn. Instead, the government is gambling that voters will be so grateful for pre-election tax cuts that they will forget the massive increases that preceded it and that they will vote for the High Tax Party in preference to the Even Higher Tax Party.

The chancellor strongly resisted calls for the 5% rate of VAT on domestic fuel to be rescinded or suspended as that would mean losing the increased receipts on higher prices. Instead, the government introduced a bizarre £150 council tax rebate and a £200 loan to be repaid over five years – or maybe not. The council tax rebate only applies to homes in the A-D bands, but it does apply to second homes.

The measures announced in the actual statement are modest. A temporary 5p cut in fuel duty is less than the extra VAT (about 7p a litre) levied on the higher pre-tax price of petrol. The rise in the National Insurance payment threshold to £12,570 (the same as for income tax) is very welcome, but does not affect the threshold for employers’ contributions. These raise employment costs and thus depress pay settlements. Ultimately it is paid for by employees.

The pledge to cut the basic rate of income tax by one penny in the pound to 19p is driven by the “no U-turns” dogma. A reversal of the increase in National Insurance would have made much more sense.

The direct implications of the measures for investors are minimal but the prospect of steadily improving public finances, a trend that is likely to continue even as economic growth slows, provides a positive backdrop for the economy, inflation and markets.

The pressure for extra spending and mis-spending will continue, notably on defence and, ad infinitum, on the NHS, but the electoral clock is ticking so the government’s priority will be cutting taxes. Investors will soon need to start worrying about the implications of a change of government in 2024. That would bring plenty of U-turns.

Consumers are being hit by a double whammy to their cost of living this April, with a rise in National Insurance contributions and the energy price cap rise kicking in.

UK prime minister Boris Johnson has come under pressure to delay a rise in National Insurance at a time where inflation is spilling into almost everything. Many Conservative MPs have urged Johnson to delay the rise, but to no avail: from April 2022, class one National Insurance contributions (also known as NICs) will rise by 1.25 percentage points.

“We must clear the Covid backlogs, with our plan for health and social care – and now is the time to stick to that plan. We must go ahead with the health and care levy. It is the right plan,” Johnson and UK chancellor Rishi Sunak wrote in The Sunday Times last month.

What is National Insurance?

National Insurance (NI) is a tax paid by employees and by the self-employed on their earnings, and by employers on their employees’ earnings.

It was introduced in 1911 to set up a fund for workers in need of medical treatment or for those who had lost their job. NI contributions do still count towards state pension eligibility, but it has effectively become a second tier of income tax.

Employees currently pay at a rate of 12% on earnings above £184 a week (£9,568 a year – the ”primary threshold”) and 2% on earnings above £967 a week (£50,270 a year). Employees over the state pension age are not liable to pay (but employers’ contributions are still due).

Employers pay at a rate of 13.8% on employee’s earnings above £170 a week (the ”secondary threshold”) – there is no upper limit and all earnings over £50,270 a year are paid at 13.8%

Why are National Insurance contributions rising and what are the new rates?

National Insurance contributions are rising to raise more money for healthcare as the pandemic has put massive strain on the Treasury’s finances.

In a statement to the House of Commons last year, Johnson said the rise in NI will pave the way for “additional investment in health and social care”.

From April 2022:

The primary threshold will rise from £9,568 a year to £9,880 a year

NI contributions will rise from 12% to 13.25% for earnings between £9,880 and £50,270

NI will rise from 2% to 3.25% for earnings of more than £50,270

Employers’ contributions will rise from 13.8% to 15.05% on employees’ earnings of more than £170 a week.

Employees who earn less than £9,880 are exempt from NI.

Under the new rules:

• Somebody earning £10,000 will pay £36 less per year
• Somebody earning £20,000 will pay an extra £89
• Somebody earning £30,000 will pay an extra £214
• Somebody earning £50,000 will pay an extra £464
• Somebody earning £80,000 will pay an extra £839
• Somebody earning £100,000 will pay an extra £1,089

Source: Institute for Fiscal Studies (IFS).

How does the new Health and Social Care Levy tie in with this?

From April 2023, National Insurance rates will fall back to current levels. But you won’t be paying any less. Instead, the extra amount will be reclassified as a new Health and Social Care Levy.

A key difference between the levy and current National Insurance is that the former will also have to be paid by state pensioners who are still working.

The government estimates that the changes in NI will generate £12bn a year and will first be used to reduce some of the current pressure being faced by the NHS. Some of the funds will then be reallocated to the social care system.

The purpose of the increase is to ensure people in England spend no more than £86,000 in care costs from October 2023, but this excludes food and accommodation, reports the BBC.

The new rules mean that anybody who has assets with a value of less than £20,000, including savings, investments and the value of their home, will receive care that is fully covered by the taxpayer.

The taxpayer will subsidise rather than fully cover care for those who have assets in the range of £20,000-£100,0000.

Why is the NI rise controversial?

Critics of the NI rise stress that people on lower wages will be hit harder.

The logic for this is simple. From April, those who earn between £9,568 and £50,270 pay NI at 12%, but earnings above this threshold are paid at just 2%.

The rate may only be increasing by 1.25 percentage points, but that means that contributions are actually rising by more than 10%, says James Andrew, senior personal finance editor at Money.co.uk: “With National Insurance (NI) increasing by 1.25 percentage points in April, it’s no surprise that many UK workers think this means their payments are going up by only a fraction,” he said.

“However, that figure relates to the rate, and this means that for most people contributions are actually increasing by more than 10%.”

He added that the timing of the NI rise couldn’t be worse given research published last month also showed the average person’s debt in 2021 more than doubled to £25,879, with the rise in energy price cap only weeks away.

Does it apply to different parts of the UK equally?

Although the new social care levy will only apply to England, the tax changes will affect the entire of the UK in the same way. The income generated from the levy will be distributed across the four countries. For example, Scotland, Wales and Northern Ireland will receive an additional £1.1bn, £700m and £400m respectively by 2024-2025.

What’s happening?

A triple whammy of soaring energy costs, galloping inflation and tax rises is about to whack UK households, with some economists predicting a cut in real incomes worse than that seen during the financial crisis of 2008. Inflation as measured by the consumer price index (CPI) was 5.1% in the 12 months to November 2021 (up from 4.2% in October, and more than twice the Bank of England’s target rate). The old retail price index measure of inflation is already at 7.1% – one reason why ministers insist it is “no longer an official measure”.

On tax, national insurance rises in April, plus a freeze on thresholds (another form of real tax rises), means that Britain is heading for its highest overall tax burden since the 1950s. And energy bills are set to soar, also in April, with a YouGov poll showing that one in three Britons think they won’t be able to pay their energy bills this year.

What’s up with energy?

In early February the energy watchdog Ofgem will announce the new maximum price for energy bills. Because the market price of gas is now vastly higher than when the cap was last set, that maximum could easily go from £1,277 for an average household to above £2,000, twice what it was last winter.

That extra £723 is equivalent to about 3% of disposable income (after housing costs) for a household on (median) average income – in other words a “hit to living standards of a sizeable recession”, calculates Chris Giles in the Financial Times.

Together with tax rises, the Resolution Foundation calculates that the average household stands to lose an extra £1,200 a year. And that’s before you take account of the impact of energy prices on inflation. Goldman Sachs reckons the April price hikes will take the CPI inflation rate from that 5.1% to 6.8%, the highest rate for 30 years.

What can the government do?

It could remove VAT on energy. Before the EU referendum of 2016 Boris Johnson argued that an upside of Brexit would be the freedom to “scrap this unfair and damaging tax”. Now, he says, removing VAT would be a “blunt instrument” that wouldn’t direct help towards those in most dire financial need. He is right, says David Gauke in the New Statesman – and the unlikely alliance of Labour and Tory rightwingers calling for such a move are wrong.

The typical household saving would be just £90 a year: far better to target help at the worst affected (as the government has hinted it will). Another option would be for the government to extend a credit line to energy providers, allowing a smoothing out of price rises for consumers. Given the unpredictability of gas prices, that’s a risk the Treasury is unlikely to embrace, says The Times – especially given the precedent it would set for other industries subject to volatile commodity prices.

Similarly, the removal of green levies (of around £150 a year on average) “would be little more than tinkering and would be deceptive if general taxation then merely took up the burden”.

So there are no good options?

None that will save the government political pain. The roots of the problem are global, says Jeremy Warner in The Daily Telegraph, yet it has “been made very much worse in the UK by years of short-sighted, populist energy policy” that encouraged short-termism and unrealistic price-setting. The long-term solutions to the UK’s rising taxes and energy bills “lie in radical reform of healthcare spending and energy markets”.

Yet even if we had a strong government bold enough to take the plunge, it wouldn’t solve the immediate problem. “Unless saved by rising wages, ministers are about to stumble out of Covid-19 straight into the path of an oncoming lorry marked Lower Living Standards” – and there’s nothing they can do.

What’s the broader context?

The broader context is a government struggling to emerge from the pandemic with a convincing agenda, a governing party increasingly divided over fiscal policy, and a prime minister weakened by questions over his integrity.

The Johnson administration appears to have no plan to deal with the crisis, says The Daily Telegraph – and “has yet to detail a credible set of policies, including genuine deregulation, pro-growth tax reform and higher quality skills, to boost productivity and wages across the board”.

The government claims it wants to deliver a “high wage, high productivity economy”, says the Financial Times – but for now it “must focus on heading off a high-cost, high-poverty one instead”.

But isn’t the UK getting richer?

The UK has got richer over the past half century, but the share of wealth taken by labour has fallen, according to the Office for National Statistics (ONS). Increases in productivity will pass through to higher labour income – and hence drive real higher living standards – only if the labour share of income is constant or growing. If not, those productivity gains are captured by businesses as lower operating costs (lower unit labour costs), increased business profits and lower consumer prices.

ONS data shows that the labour share of income falling. In the period 1955-1970, the average share was about 70%. But it fell steadily between the mid-1970s and the mid-1990s, and since the turn of the century, it’s been broadly flat at around 60%. A similar trend can be seen in the US, and many other rich economies. That is a context in which lower paid workers are unlikely to have much ability to weather a dramatic shift in their living standards.

The public has been “remarkably forgiving” of the government’s missteps during the pandemic, says The Spectator. But the soured mood over lockdown-flouting parties will turn far nastier when voters find their real incomes shrinking and bills soaring. “A government which owes its existence to a newfound ability to reach relatively low-income voters is fast approaching a crisis which could turn out to be terminal.”

For all the fanfare about cheaper draught beer and sparkling wine, few will be raising a toast to last week’s Budget. Tax rises and personal-allowance freezes will leave the average household £3,000 a year worse off next year than they were at the time of the last general election, according to calculations by Hargreaves Lansdown. The already-announced health and social care levy, a 1.25% rise in national insurance that takes effect next April, plus an associated dividend-tax rise, will net the Treasury £13bn a year.

More insidious are frozen personal allowances. In April, the chancellor froze the basic-rate tax band at £12,570 and the higher-rate band at £50,270 until 2026. At a time of high inflation and strong wage growth, many earners will be sucked into higher bands over the coming years: the Office for Budget Responsibility (OBR) estimates that an extra one million taxpayers could be paying the higher rate by 2026. Several other thresholds – including the capital-gains tax (CGT) allowance, pension contributions and inheritance tax – have also been frozen. The “stealth tax raid” looks set to raise £47bn over the next five years, says Laith Khalaf of AJ Bell. Taxpayers always face “fiscal drag” – the practice of the Treasury holding tax threshold increases below the rate of wage increases. Yet these frozen thresholds amount to “fiscal drag on steroids”. The freeze means a taxpayer earning £80,000 could pay an additional £5,505 in tax over the next five years, assuming current OBR forecasts for wage growth and inflation.

There are some winners at the lower end of the income spectrum: households on universal credit will enjoy a slightly lower “taper rate” of tax on extra income, while the national living wage has been raised. A planned fuel-duty rise has been scrapped, although soaring oil prices mean motorists are unlikely to notice. Overall, the OBR says that Britain is heading for levels of taxation not seen since the 1950s.

The dogs that didn’t bark

For investors, most important were the dogs that didn’t bark. A widely discussed rise in CGT didn’t materialise, while higher-rate tax relief on pension contributions once again escaped the chopping block. The pensions lifetime allowance remains frozen at £1.073m, with the annual allowance likewise stuck at £40,000. Yet this only amounts to a reprieve, as Michael Martin of Seven Investment Management tells the Financial Times. It is difficult to “make large tax changes in the middle of a tax year”, but changes to the CGT regime “must be in the pipeline… be prepared for an announcement in March 2022, with potentially a year’s window to crystallise gains… before the higher tax rate comes in”.

With taxes only heading upwards it is crucial to use up tax-free allowances. Make the most of tax relief on pension contributions (especially for higher-rate taxpayers) and the £20,000 annual individual savings account (Isa) allowance. For assets outside of a pension or Isa wrapper, make the most of the £12,300 per person CGT allowance while it lasts, says Angela Lloyd-Read for This is Money. “Transferring assets to a spouse or civil partner, free of CGT, allows them to use their allowance too, effectively doubling the household CGT allowance for the year.”

There is one silver lining to the tax grab: improved economic forecasts from the OBR mean that the chancellor could have £25bn of spare fiscal room to play with by the end of this parliament. That war chest could eventually turn into pre-election giveaways.

When chancellor Rishi Sunak was splashing the cash last year, he was cheered to the rafters and instantly catapulted to the status of next prime minister.

Only a few of us groused about the huge extravagance of the spending, wondered how cost effective it would prove and how much would be dissipated in waste and fraud.

Once started, Sunak seemed unable to stop increasing and extending his schemes.

It was reminiscent of the song in Evita; “when the money keeps rolling out, you don’t keep books, you can tell you’ve done well by the happy grateful looks, accountants only slow things down, figures get in the way…now cynics claim a little of the cash has gone astray, but that’s not the point my friends.”

Only in September, when both employers’ and employees’ national insurance rates were increased by 1.25 percentage points, did the penny drop that the Fundaçion Boris Johnson didn’t have all that money to spend...

Boris Johnson is rather too keen on splashing the cash

Rishi Sunak actually started to raise taxes to pay for his pandemic largesse last year, increasing corporation tax and freezing personal tax allowances, but few noticed. Corporation tax was increased again in March to 25% – but people think that a victimless tax.

Ostensibly, the £12bn national insurance increase was to solve the problem of the funding of social care, diverted in the short term to the NHS. Having closed operating theatres during the pandemic and left hospitals up to 40% unoccupied, the health service faces a huge and wholly predictable backlog. As Merryn pointed out, social care could more fairly have been funded by a national equity draw-down scheme from the housing wealth of those who moved into care.

So far, the government has broadly got away with it in electoral terms. Focus groups and opinion polls told the government that the public would support tax increases if the proceeds were spent on social care and the NHS.

But what, many Conservatives are now wondering, if they find out that it is really to plug the holes in the public finances caused by mis-spending? And what if people say they are supportive of tax increases only until they notice the hole in their monthly pay-checks?

Resistance to the Peronism of the prime minister is growing in the Conservative party, on the back-benches, in government and in the cabinet. They don’t want to see what they regard as the party of sound finance and low taxes, the natural party of government, hijacked, as the Republican party in the United States has been, by a leader who appears to take his inspiration from Latin America.

Things are better than expected, but the UK’s finances are still very fragile

Sunak’s latest budget shows that he can see which way the wind is blowing. He has been helped by public finances being less bad than expected – borrowing in the first half of 2021/2 was £108bn, half that of last year, leaving debt at 95.5% of GDP. Since 40% of this debt is held by the Bank of England, net government debt is less than 60% of GDP – though there is always a risk of the Bank having to start selling that debt to curb monetary growth.

Further help has come from the forecast of the Office for Budget Responsibility (OBR) that the economy will return to its pre-pandemic level by the end of the year and then continue to grow. The OBR expects government borrowing to drop to pre-pandemic levels, £41bn pre-additional spending, by 2024/5. With inflation persisting (4% in 2022), borrowing would be just 1.5% of GDP.

This allowed Sunak to indulge his Peronist boss with some extra spending and tax concessions to grab the headlines, appease the vested interests and impress the focus groups. Inevitably, extra billions are being thrown at the NHS and education in the probably futile hope that some of it sticks to services. The problem is that the extra spending is to be financed by revenue forecasts that could be fallible.

Many will be disappointed that the chancellor ignored the siren voices calling for higher capital gains tax, stamp duty and estate duty; the further erosion of tax breaks on pensions, an additional wealth tax and a special anti-America tax on tech giants. The chancellor presumably knows that these tax increases would raise far less than the Treasury estimates.

More importantly, the relentless rise of property valuations and stock markets means that receipts from existing wealth taxes will continue to rise exponentially. For example, the £6bn raised from death duties last year is increasing by 20% per annum.

Things could still turn out just fine – but there are serious risks ahead

Sunak seems determined to get the public finances back on a sound footing. Among the most interesting of his comments was “my goal is to reduce taxes. By the end of this parliament, I want taxes to be going down, not up.” If he succeeds in this, he may be able to reverse some of the tax increases and either secure the government’s re-election or give himself a chance of leading his party in opposition. There are, however, pitfalls ahead.

An economic slow-down next year could turn into recession, exacerbated by tax increases and productivity-sapping government spending. The funding of social care hasn’t been resolved; the problem has merely been postponed. The NHS consumes ever increasing amounts of taxpayers’ money with little to show in terms of improving outcomes. The funding of a bloated higher education sector through loans that will never be repaid has been a financial disaster. Badly-needed changes to business rates and housebuilding have been kicked into the long grass

The transition to electric vehicles means that the £37bn raised by fuel and excise duties will have to be replaced. A higher rate of VAT on electricity would be logical, but would break another election pledge. Finally, President Biden and the Democrats look unable to implement their plan to increase corporation tax from 21% to 28%. This makes the UK’s proposed increase to 25% counter-productive in terms of revenue.

All this has to be done through a spend-thrift Prime Minister and a civil service whose first instinct is always to raise taxes. As Sir Humphrey Appleby famously expostulated to his junior in Yes, Prime Minister, “it’s not taxpayers’ money, Bernard, it’s our money.” Sunak still has a mountain to climb.

Anyone planning to raise a glass to Chancellor Rishi Sunak’s Budget should fill it with draught beer or sparkling wine rather than a strong red or a high-strength cider. His rationalisation of alcohol duties will reduce tax on the former – taking 3p off the cost of a pint, for example – but make higher-alcohol drinks more expensive.

It’s a common theme in this year’s Budget. The Chancellor is cutting air passenger duty in half, to just £6.50 on domestic flights, but introducing higher rates on longer trips, including a new £91 duty on ultra-long-haul flights. On fuel duties, he is freezing tax for the 12th year running, but actively spending money on electric vehicles, with £620m for public charging points.

Personal finances under pressure

In truth, these adjustments are minor, particularly in the context of the way in which the rising cost of living – inflation is now expected to average 4% next year – is hitting people’s personal finances. Here, the Budget confirmed some support for those on low incomes, including an increase in the minimum wage to £9.50 and a smaller reduction in universal credit as claimant’s income rises. But these won’t be enough to fully protect families from higher prices, or compensate in full for the end of the £20 universal credit top-up for those affected. Nor is there is any additional help for those on average earnings or more.

Indeed, millions of people will be worse off when the Chancellor raises national insurance contributions by 1.25 percentage points next April to pay for NHS and social care funding. And the Budget confirmed that income tax thresholds will be frozen until the 2025-26 tax year, guaranteeing higher tax bills for those whose earnings rise.

Savers unmoved

For savers, there is not too much to get excited about in this Budget. The individual savings account (Isa) allowance will remain at £20,000 in 2021-22, while child trust fund and Junior Isa allowances will remain at £9,000. Savings below £5,000 will continue to qualify for the nil rate income tax band. Similarly, the capital gains tax system is unchanged and there are no adjustments to inheritance tax.

On pensions policy, the Chancellor was not keen to talk about the Government’s manifesto promise of a triple-lock increase in state pensions, which he suspended for the 2022-23 tax year in September. Budget documents reveal this change will save £5.4bn next year – but even more in future tax years, because state pensions will then rise from a lower base even after the triple lock returns.

As for private pensions, the Chancellor has followed the example of his predecessors, resisting the temptation to raise money by changing tax reliefs on pension contributions. Savers will be entitled to claim relief at their highest marginal rate of income tax, up to the annual allowance on contributions – the lower of £40,000 or your annual earnings for most people.

Still, two small-print changes could prove significant. First, Sunak is promising to look at waiving the maximum charge pension fund providers can levy on workplace pensions, so they can launch investment products in areas such as infrastructure. That could see some pensions become more costly, but also give savers a wider choice of investment funds. Second, the Chancellor is to close the “net pay anomaly” which makes it difficult for many low earners to claim the 20% tax boost on their pension contributions that everyone is in theory entitled to. That’s good news for savers on lower incomes, though the rules won’t change until 2024.

Business rates help for some small businesses

If the Chancellor was sparing with Budget measures affecting people’s personal finances, he also surprised entrepreneurs and small businesses with fewer changes than they might have expected.

For example, many businesses had hoped for an overhaul of the business rates system, but the Chancellor wants to finalise plans for new online sales taxes first. Still, for businesses occupying physical premises, next year’s freezing of the multiplier applied to business rate calculations will be welcome. And a new 50% relief for the retail, leisure and hospitality industries is aimed at those sectors hit hardest by the Covid-19 crisis. There is also additional support in the form of tax breaks on property improvements, particularly for green modifications.

Other support that could prove to be valuable to small businesses include the annual investment allowance, where the £1m yearly limit on tax-efficient investment in plant and machinery will be extended until 2023, and the continuation of the “super deduction”, which allows businesses to reduce their taxable profits when making investments. Nor will businesses with profits below £50,000 be subject to the new 25% corporation tax coming into force in 2023; they will continue to pay 19%.

On the downside, however, small businesses will see wage bills increase next April, as the minimum wage rises to £9.50 an hour and the 1.25 percentage point increase in employers’ national insurance contributions comes into effect.

Self-employed face higher tax bills

Self-employed workers also face the national insurance increase next year and will be disappointed to see no reforms to the IR35 system – blamed in part for labour supplies in many industries because self-employed workers are finding it difficult to comply. The Budget also confirmed the Chancellor is going ahead with the “base period reforms”, which affect how self-employed workers and partners file their tax reforms; this will raise £1.7bn over the next four years.

In addition, some campaigners are angry that the self-employed income support scheme, offering financial support to those hit by the pandemic, has not been extended. The Recovery Loan scheme, by contrast, has been extended beyond its 31 December cut-off point to 30 June, offering advances of up to £2m per business.

Finally, if you’re thinking about starting up a business, make sure you consider a wide range of funding possibilities. The Budget includes an extension of the Start-up Loans Scheme – through which entrepreneurs can borrow up to £25,000 for new ventures – for three more years.

What has been announced?

The government is introducing a new tax to fund more spending on the National Health Service (NHS) and social care. From April 2022, national insurance contributions (NICs) will go up by 1.25 percentage points both for workers and employers, taking the standard rate to 13.25% for employees and 15.05% for employers. Self-employed people will pay 10.25%, compared to 9% now (on Class 4). From April 2023, the NI increase will be replaced with a separate “health and social care levy” that has the same effect, but will also be paid by pensioners still in employment (who don’t pay NICs). Of course, NICs are not an insurance scheme, despite the name. They are simply another form of income tax (with some different thresholds and exemptions, for added complexity), and a job tax paid by employers. This tax increase affects about 29 million workers, and means that people earning £30,000 a year – close to the average wage – pay £255 more per annum. For those earning £50,000, the bill is £505.

What about dividends?

In addition to NICs, there was also an unexpected 1.25-point rise in dividend tax rates, affecting investors in stocks and small business owners who pay themselves via companies. Basic-rate taxpayers will now pay 8.75% tax on dividends, higher-rate payers will pay 33.75%, and top-rate payers will pay 39.35% (on all dividends exceeding the £2,000 dividend tax-free allowance that sits on top of the £12,570 personal allowance). Many accountants see the dividend move as part of HMRC’s crackdown on “disguised employment” aimed at avoiding tax. For investors with extensive portfolios, the rise increases the incentive to hold dividend-paying stocks in individual savings accounts (Isas) or self-invested personal pensions (Sipps), which will not be affected.

How much will the government raise?

This “Johnson tax rise” amounts to £12bn per year (about 0.5% of GDP) for three years, says Liam Halligan in The Daily Telegraph. To that we can add the additional £25bn from the upcoming increase in corporation tax (from 19% to 25% in 2023) and freeze on tax thresholds. Together, these tax rises are the biggest in a single year since the 1970s, and will take the UK’s tax burden – meaning tax revenues as a share of GDP – to 35.5%, the highest since the 1940s. Nor should we rule out more rises in next month’s Budget (due on 27 October). “With public spending surging, and now at 42.4% of GDP, that can hardly be ruled out”, says Halligan. Even without more rises, it’s a strange time to be increasing taxes on business and workers – we are still emerging from a pandemic and evidence is mounting that the bounceback is already stalling.

Will it improve social care?

No one knows, since no social care reforms have been announced. A white paper is due within weeks. However, in the first instance the extra money is going to tackle the backlog in the NHS caused by the pandemic. There’s a risk that the NHS will permanently “swallow up” the whole £12bn, says the Institute for Fiscal Studies, leaving nothing to fund social care plans.

Are the rises fair?

They don’t look it, say many critics. NICs kick in at around £9,500, meaning that even some people too poor to pay income tax are caught in the net. Graduates repaying student loans will be taxed at 50% on any increase in salary above £27,288. This means “increasing taxes on the working poor to safeguard the assets of the stonkingly rich”, says Fraser Nelson in The Spectator. It only serves to protect the new “assetocracy” of home-owning millionaires. A quarter of those aged 65 or over (three million people) live in households with net wealth of more than £1m, compared to 7% in 2008. Another three million are worth more than £500,000. Boris Johnson has privately admitted this to his MPs – and it’s a sorry definition of conservatism: “a protection racket, where the tools of the state are used to extract money from minimum-wage workers and pass it on to the better off,” says Nelson.

What would have been fairer?

The straightforward alternative to raising £12bn a year via this “dog’s dinner” would be a two percentage-point rise in income tax, says David Smith in The Sunday Times. The government hopes to bamboozle voters by using the “more mysterious and widely misunderstood” NICs instead. The result is something that “has further complicated our ludicrously complex tax system and introduced a bigger discrepancy into the tax treatment of the employed and self-employed”. What’s more, income tax is going up next year anyway. This supposedly low-tax government is stealthily freezing the personal allowance and higher-rate threshold for four years – creating 1.3 million new taxpayers and one million more on the higher rate, as well as bigger bills for all income-tax payers than if those allowances had risen with inflation.

Why not remove existing exemptions?

One of the reasons NICs are seen as an unfair tax is that pensioners – even wealthy ones with high incomes – don’t pay it. Nor is it paid on investment or property income. What’s more, the employee contribution falls from (currently) 12% of income to 2% on earnings over £50,270 a year, meaning that high-earners pay a lower proportion of their earnings in NICs than low earners. Removing all existing exemptions and earnings limits could raise considerably more than £12bn a year, making room for a cut rather than an increase in the overall NIC rate, according to a report by researchers at the London School of Economics and Warwick University, says Smith. But what’s really needed is a root-and-branch simplification of the tax system that merges income tax and NICs; equalises the rate of capital gains tax and dividends; and completely overhauls property taxes, says The Times. That would be fairer, simpler, and give taxpayers a clearer view of our ever-increasing tax burden.

The government’s announcement of new tax charges to pay for the cost of social care could be another nail in the coffin for the practice of self-employed people and small-business owners paying themselves through dividends rather than a salary. While the dividend option has long been the preferred route for many self-employed workers, its advantages have been steadily eroded in recent years.

At first sight, dividend tax rates still look advantageous. From next year, basic-, higher- and additional-rate taxpayers will pay 8.75%, 33.75% and 39.35% respectively on dividends they pay themselves from their businesses, a 1.25% increase compared with today. This simply matches the 1.25% increase in national-insurance contributions for taxpayers who receive a salary.

Bear in mind, however, that your business will also have to pay employers’ national insurance, which is increasing by 1.25%. So self-employed workers who have set up companies will effectively have to pay the social-care charge twice over if they are also paying themselves even a very small salary – as most do, in order to qualify for state pension rights, for example.

Moreover, while income-tax rates are staying at 20%, 40% and 45% respectively under the new system – and there are no employee national-insurance contributions to pay on dividends – the comparison with dividend-tax rates is misleading. In practice, dividends must be paid out of company profits after the business has paid its corporation tax, so you need to take this tax into account too when comparing the two regimes.

Chancellor Rishi Sunak’s attitude towards self-employed people paying themselves through dividends is becoming increasingly clear. His move to make absolutely sure that the self-employed pay more to cover social-care costs follows his controversial decision to exclude many small business owners from the generous financial support offered to most people during the Covid-19 crisis.

Some 700,000 small business owners who pay themselves through dividends missed out on the vast majority of assistance made available through initiatives such as the self-employment income support scheme (SEISS).

The government’s direction of travel is also revealed by its changing policy on the dividend allowance – the amount of dividends you can earn each year with no income tax to pay. This was set at £5,000 in 2016, but reduced to £2,000 in 2018, where it has remained ever since.

In other words, the state has consistently looked to self-employed workers paid through dividends as a source of additional tax income. Indeed, tax rates on dividends were also increased only five years ago.

At the same time, the Treasury has resisted calls to ensure this group of taxpayers receives the same benefits as other people. The valuable Covid-19 support they missed out on is only part of that story. The self-employed also have to pay costs such as retirement saving and sick pay themselves.

In which case, many more self-employed workers will now be questioning whether it continues to make sense to choose the dividends route. If you are comparing only the tax benefits of dividends versus a salary, the sums will depend on your personal circumstances, but look increasingly finely balanced. But take into account broader issues too, including what might happen in a crisis.

“We promise not to raise the rates of income tax, National Insurance or VAT. We not only want to freeze taxes but to cut them too.” That’s the Conservative manifesto in 2019. “I want to see... over time... lower rates of tax because I just believe that its nice for people to be able to keep more of their own money.” That’s Rishi Sunak in 2020.

So here we are, a year later, with a tax burden that is about to be one of the highest ever. The new health and social care levy is a 1.25% tax on income. Add it to the others (National Insurance and income tax) and the entry-level rate of income tax in England will now be 33.25% (unless you are paying back a student loan, in which case it is 42.25% – and yes, that is shocking).

The top rate of income tax in England is to be 48.25%; 49.25% in Scotland. You are about to get to keep rather less of your own money. The excuse for this is the pandemic. How could the Conservatives possibly have known? That question would have more resonance if this tax was as temporary as Covid-19 lockdown policies or a levy that could solve one of our major problems (the shocking inadequacy of the NHS or our ongoing social-care row).

It isn’t either of these things. We are told (by a one-time small-state, low tax-loving party) that it represents a “permanent new role for government”. But we are also told that it is initially going to be used to cut waiting times in the NHS – and be used for the long-term funding of social care later. This seems unlikely. Money is never diverted from the NHS. It is always diverted to the NHS, and will be until someone somehow makes a genuine effort to reform it (they won’t). The Resolution Foundation reckons that by 2025 the Department of Health and Social Care will account for 40% of public spending, up from 28% in 2004. It won’t be long before your health and social care levy goes up again – to pay for social care.

A plan, but a lousy one

You could argue that there are positives here. At least there is finally a (sort of) plan for social care. We know who will pay what – and we know that few people will lose their home to care costs. However, while it might be a plan, it is still a lousy one. There is one perfectly acceptable alternative in a state-sponsored collective insurance scheme. There is a second: insisting that people use property wealth to pay for care.

The idea that houses are somehow sacred is very British (witness our inheritance-tax rules). But while our houses are often precious to us during our lives, they are generally nothing but representations of accumulated assets after our deaths. When we die our children don’t move into them as some kind of celebration of our lives. They sell them. In life a house is a home. In death it is just money. So why not use a type of state-backed equity release to pay for care?

The only vaguely positive thing I can say is that while the tax will fall predominantly on working people, it is at least being extended to dividend income. That makes sense. Much dividend income is paid instead of salary. If tax is going up for the salaried it should go up for those who earn via dividends too. However, tax is the one area where we wish Boris Johnson’s government would think more about levelling down than levelling up. Just like they said they would.

Rejoice. British citizens are about to be treated to a third flavour of income tax.

We’ve already got the original vanilla income tax. We also have National Insurance contributions, which are ostensibly funding your state pension, but, of course, are just another income tax.

And now we’re going to have the wonderfully named “health and social care levy”. With a name like that, who could object to paying it? I mean, it’s not even a tax, it’s a levy. You should feel honoured to pay it!

Anyway. This tax hike will bring the UK’s tax burden to its highest level ever – 42.4% of national income.

Social care costs: grasping the nettle in a ham-fisted way

What’s the money going to go on? It’s aimed mainly at two things, one short-term and one long-term. In the short term, the NHS has a massive pandemic backlog to clear up. So some of the money will be used to prevent waiting lists from exploding out of control.

In the long term, we need to find a solution for funding social care. This has been a dilemma that governments have been avoiding tackling for years – the most recent attempt by Theresa May ended up costing her a majority in the 2017 election, for example.

This is a nettle that the government appears to have finally grasped in a slightly ham-fisted manner. A new cap of £86,000 on the amount that anyone in England will need to spend on personal care in their lifetime is being introduced from October 2023.

Also from that date, anyone in England with assets of less than £20,000 will not have to dip into their savings or tap the value of their home to pay for care. (The main residence only counts towards means testing for single people who are going into a care home – so those being cared for at home, or those with a partner can ignore the value of the home for means-testing purposes).

Those with assets of between £20,000 and £100,000 will get some means-tested support. Currently anyone with more than £23,250 has to pay their care costs in full (be aware that this covers care costs, not accommodation costs).

Paul Johnson of the Institute of Fiscal Studies (IFS) think tank isn’t necessarily keen on the way they’ve done it, but he does argue that: “much needed reforms to social care are being introduced and unavoidable pressures on the NHS are being funded through a broad-based and broadly progressive tax increase. That is better than doing nothing.”

So what exactly have they announced to pay for all this and what does it mean for your money?

Being an employee, hiring staff and earning dividends will get more expensive

From April 2022, National Insurance (NI) contributions will rise by 1.25 percentage points. In April 2023, NI will go back to the previous rate, but the new “health and social care levy” will be introduced at a 1.25% rate.

This will also be paid by pensioners who work (whereas previously that wasn’t the case – NI contributions stopped once you reached the state pension age).

Note that, this isn’t just a 1.25 percentage point rise in NI for employees and the self-employed – it’s also going on employers’ NI contributions. In all, notes the IFS, “the combined NICs rate on employment income (including employer NICs) will rise from 22.7% to 24.6%. By contrast, because the self-employed don’t pay employers NICs, their rate rises from 9% to 10.25%.”

In effect, that’s a tax on employment. It might not be as noticeable right now, because we are experiencing a strong labour market and labour shortages. But that extra money has to come from somewhere – just because it’s called employer NICs doesn’t mean the employer actually pays it. The higher cost will either come from higher prices (bad for consumers), squeezed profit margins (bad for shareholders) or from lower wages (bad for employees).

On top of all that, there’s a rise of 1.25 percentage points in the dividend tax. So basic rate taxpayers will pay 8.75% dividend tax (after the £2,000 dividend tax-free allowance – and the £12,570 personal allowance – have been used up). Higher-rate taxpayers will now pay 33.75%, and top rate payers will pay 39.35%.

It’s yet another good reason to make sure you’re sheltering any stockmarket investments in a tax-efficient wrapper such as an Isa or a pension. Although that doesn’t necessarily help those self-employed people who pay themselves in the form of dividends.

The tax system gets ever more complicated and more expensive

As Johnson points out, these moves continue “a trend... of the burden of tax being shifted towards earnings”. A working-age person earning the average UK wage of £28,388 a year will now be paying 20% of their income in total on the three income taxes. A pensioner on the same income will be paying “just 11% – almost half the rate”.

Meanwhile “the creation of an entirely new tax” means the system has been made even more complicated for no good reason.

So overall, the tax burden has increased both in terms of scale and in terms of bureaucracy. We can’t say we’re happy about it. But it’s something we suspect we’ll all have to get used to happening more and more in the coming years.

There is good news for self-employed workers still struggling with the financial impact of Covid-19. The government has now opened applications for the fifth – and final – round of the self-employment income support scheme (SEISS). You could be entitled to a grant of up to £7,500.

The eligibility criteria for the SEISS are broadly unchanged, and HM Revenue & Customs will look at your previous tax returns to check you meet the basic requirements. These are that you traded in both the 2019/2020 tax year – and submitted your self-assessment tax return for that period on or before 2 March 2021 – and the 2020/2021 tax year.

Further key conditions are that at least 50% of your total income must come from self-employment and your average trading profit should be no more than £50,000.

In addition, you need to be able to show that you reasonably believe your trading profits during the period from 1 May to 30 September 2021 will be lower because of Covid-19. You could be asked to supply evidence. It may be that you have been unable to trade because of lockdown restrictions during that period; or you may be suffering reduced demand or capacity.

Turnover tiers

What you’ll get from the SEISS depends on how badly you have been affected. This is a departure from previous rounds of the scheme, which paid flat rates of support. This time, if your turnover fell by 30% or more in 2020/2021 compared with 2019/2020 or 2018/2019, you will be able to claim 80% of your average three-month trading profit, capped at a maximum of £7,500. If your turnover declined by less than 30%, you can only claim 30% of your average three-month profit, up to a maximum of £2,850. In theory, HMRC is supposed to contact everyone it thinks may be eligible for the fifth round of the SEISS in order to invite them to apply. It began sending out those invitations in the second half of July – by text message, email and letter – but is staggering the process so that the system isn’t overwhelmed.

If you haven’t heard from HMRC by the middle of August and believe you may have been missed out, it is worth contacting the tax authority directly.

Applications for the scheme have to be made online by 30 September through HMRC’s SEISS portal pages. You will need a variety of data to complete the application, including turnover figures for the relevant tax years, your national insurance number, your self-assessment unique taxpayer reference (UTR) number, and your bank account details. HMRC will check your details and is committed to paying you within six working days of receiving your claim.

Importantly, awards from the SEISS are grants, not loans, and do not have to be repaid. If you’re entitled to the money, you should definitely make a claim.

Nonetheless, self-employed workers are entitled to feel aggrieved about some aspects of the scheme. One issue is that while this round covers a five-month period, it only pays out on the basis of three months’ profit. More broadly, the SEISS is far less generous than the furloughing scheme that helps employed people whose employers are struggling with the pandemic. Bear in mind too that hundreds of thousands of self-employed workers continue to miss out on any help at all – including those who have paid themselves through dividends from their companies. If you’re not eligible for help, you may be able to claim universal credit, but this won’t come close to matching the value of the SEISS.

Remember how Boris Johnson told us that with him as prime minister we were safe from income tax and National Insurance (NI) rises? Turns out (surprise!) that he was wrong. It seems his government has decided that NI is to rise by one percentage point – from 12% to 13% (an 8.3% rise) for those earning from £9,568 to £50,270 a year, and to 3% for incomes above that (a 50% rise). This, if it works as planned, should raise around £6bn a year – £12bn if employers also get hit with the extra percentage point. The money is to be spent on trying to cut NHS waiting lists and then on capping the cost of social care (in England – Scotland will just get its share of the loot for spending on whatever soon-to-fail project the SNP has in mind at the moment).

You may think this sounds OK – we have to pay for this stuff somehow, right? It isn’t. For starters, exempting those over state pension age and still working from the tax is a mistake. Some will say that the 67-plus group have already paid an awful lot of NI. They have. But the key point is that it turns out that an awful lot has not been enough (or we would be not be where we are now). You could argue that there is no such thing as “enough” when it comes to financing government spending. You would be right – but in itself that is not an argument for chucking a new element of intergenerational unfairness into the mix. If there is to be a hypothecated tax to finance a service anyone might need, then everyone must pay – it would be more honest, if politically trickier (because you can’t hide half the hit in employers’ NI) to just put a penny on our already-high income tax levels.

This brings us to the very idea of a hypothecated tax. We don’t have those in the UK. Your NI does not go on the NHS – it’s just a misleadingly-named extra income tax. Your road tax does not go on the roads. Your air passenger duty does not go on emissions mitigation. So what makes anyone think that this mooted extra penny on NI will actually go on social care rather than vanish into the black hole that is the public finances? Still it doesn’t matter what we think. What does matter is first that, while the social care discussion has been delayed until after the summer, your taxes are very likely to go up (despite the success of the UK’s vaccination programme and speed of our recovery); and second, that thanks to rising inflation and frozen allowances, they are going to go up even more than you think in inflation-adjusted terms.

On to inflation. The place to start thinking about this is in this week's issue, where Cris Heaton reviews Russell Napier’s latest book (which you must read). The key takeaway is that the debt-driven fragility of today’s financial system is a direct result of the bad policy made in the wake of the Asian Crisis of 1995-1998. That kicked off the deflationary impulse in the West, that gave us the low interest rates, that gave us the Great Financial Crisis, that gave us quantitative easing (QE) – which is financing the huge rise in the money supply that is now giving us inflation. It’s worth understanding how this works – the dynamic will be with us for a long time to come. For more on the consequences of QE, see this' week's strategy page – John looks at how it has become a “dangerous addiction” for central banks. Then for a real-world take on the problem, Bill Bonner laments the rise in the prices of second-hand tractors. It doesn’t take long for the price of a tractor to affect the price of a loaf of bread. Best to be ready.