Autumn Statement 2023 – National Insurance cuts

In his 2023 Autumn Statement, the Chancellor announced that the main rate of Class 1 employee National Insurance contributions (NICs) will be cut from 12% to 10% from 6 January 2024.

For the self-employed, Class 2 NICs will be abolished from April 2024, and the main rate of Class 4 NICs will be reduced from 9% to 8%. These measures are designed to reward work and support the UK's workforce during a period of high inflation.

Impact on employees

The cut to employee NICs was unusually implemented mid-tax year (January 2024), providing an immediate boost to January pay packets. For an employee earning £35,000, the 2% reduction equates to a tax saving of over £450 a year. Employers needed to ensure their payroll software was updated promptly to apply the new rates correctly from the start of the new calendar year.

Impact on the self-employed

The changes for sole traders and partners take effect from the start of the 2024/25 tax year. The abolition of Class 2 NICs removes a flat-rate weekly charge that has existed for decades, simplifying the system. The 1% cut to Class 4 NICs provides further relief. Together, these changes save an average self-employed person earning £28,200 around £350 a year.

The context of frozen thresholds

While these rate cuts are welcome, they must be viewed alongside the government's decision to keep personal tax thresholds frozen until 2028. As wages rise with inflation, more people will find themselves crossing into the higher rate (40%) tax band. This 'fiscal drag' means that the overall tax burden for many individuals will still increase, despite the headline cuts to National Insurance.