In his autumn statement in November 2023 the previous chancellor cut the main rate of national insurance from 12 to 10 per cent, effective from 6 January.[1] In 2024 he cut it again by another two percentage points to eight per cent,[2] while stating a ‘long term’ ambition to abolish it entirely.[3] While this was a positive change, it did not match the accumulated tax rises incurred via threshold freezes until then. In her 2024 budget the new chancellor announced that the prolonged policy of freezing income tax and national insurance thresholds will end in 2028 (albeit after a substantial threshold cut and rate rise for the employer national insurance contributions).
This note analyses the changes to the personal allowance over time and the impact of both tax policies on minimum wage earners, average earners and those who earn £50,000 a year. A previous version of this note was published in March 2024.
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Key findings
- The personal allowance rose from 28 per cent of an average worker’s full-time earnings in 2009-10 to a peak of 43 per cent in 2019-20. This has been cut back to 34 per cent in 2024-25, and is forecast to be 33 per cent in 2025-26 and 2026-27 and 32 per cent for the following three years.
- The 2024-25 rate of 34 per cent is the lowest since 2012-13 when it was 33 per cent. When this note was released in March 2024, the 2023-24 rate was 36 per cent.
- The personal allowance was 56 per cent of a full-time minimum wage earner’s income in 2010-11. This rose to 82 per cent in 2015-16 but has been cut back to 56 per cent in 2024-25 and will be cut again to 53 per cent in 2025-26, 52 per cent in 2026-27, 51 per cent in 2027-28 and 50 per cent in 2028-29.
- The higher rate threshold was 85 per cent above full-time average earnings in 2010-11. This fell to 61 per cent in 2016-17 before rising to 73 per cent in 2019-20. It has since been cut to 38 per cent in 2024-25 and is forecast to fall to just 28 per cent in 2027-28.
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[1] HM Treasury, Autumn Statement 2023, November 2023, p.2.
[2] HM Treasury, Spring Budget 2024, March 2024, p.2.
[3] Riley-Smith, B., Jeremy Hunt signals end of National Insurance, The Telegraph, 6 March 2024.