Hunt cautions about tax repercussions as national insurance reduction comes into force

The Chancellor has stated that reducing taxes to 10% will bring significant relief, but returning to pre-pandemic tax levels cannot be achieved all at once.

On the day that a national insurance reduction went into effect, Jeremy Hunt expressed uncertainty about being able to afford tax cuts for British households.

The main rate of national insurance contributions (NICs) paid by employees has been lowered to 10% from 12%, as announced by the Chancellor in November.

The government expected about 27 million UK employees to benefit from this reduction, despite warnings about some people still being worse off in 2024.

During an interview on BBC Radio 4’s Today programme, Hunt mentioned that increasing taxes in the UK, along with the US, Germany, and Japan, was a necessary measure to support families during the Covid pandemic and the cost of living crisis.

He acknowledged that returning to pre-pandemic tax levels cannot be accomplished in one go, but stated that the government has taken the first step.

Hunt emphasized the significance of the nearly £1,000 reduction in the tax bill for a typical two-earner family, bringing relief to many families. He also highlighted the choice that voters have in the upcoming election, with the Labour Party proposing to spend £28bn more annually.

The Chancellor shared that under the Conservatives since 2010, three million fewer people have been paying NICs, reflecting their belief in a “lighter” taxation regime.

Class 1 NICs are contributed by individuals between the age of 16 and state pension age who earn more than £242 per week from one job. The new rates require employees to pay 10% on earnings between £242 and £967 per week, and 2% on all earnings above £967 per week, equivalent to an annual income of £50,284.

The Treasury has described the two percentage point reduction as the largest ever cut to national insurance.

However, the Resolution Foundation has noted that the net effect will unfavorably impact or not affect all employees earning below £26,000 per year, while those earning more will benefit. They stated that those earning £50,000 are in the “sweet spot” and will gain the most.

Hunt emphasized that Chancellors have limited control over GDP fluctuations in a single month compared to the previous month.

He expressed optimism that, like other economies such as America, Germany, and France, the UK has gone through a difficult period but can now look forward to improvement.

In response to Chris Skidmore’s resignation from the Conservatives over the government’s decision to increase domestic oil and gas drilling, Hunt disagreed profoundly. He highlighted that even when the UK reaches net zero in 2050, a significant portion of energy will still come from fossil fuels, and domestic oil and gas are four times cleaner than imported alternatives.

Skidmore, who conducted a net zero review for the government in 2022, announced his resignation before the vote on the offshore petroleum licensing bill in the Commons on Monday. The bill, if passed, will require annual awarding of licenses for oil and gas projects in the North Sea.

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