National Insurance rate cut: will you be better or worse off?

How your pay will change this month

We’re all now paying a lower rate of National Insurance…but does this mean more cash in your pocket? Well, not exactly. On 6 April, the Government made its second cut to National Insurance contributions (NICs) this year.

It’s a lower tax on our earnings and around 29 million workers are expected to benefit. The Government claims the average worker could save almost £900 as a result of the two reductions.

It all sounds rather good, doesn’t it? Well, what if we told you it’s not quite what it seems. In fact, you’ll find that many of us won’t see any difference to our take-home pay and some may be even worse off. 

But allow us to explain. Here’s everything you need to know about the National Insurance changes and how they’ll affect you. 

What is National Insurance?

In a nutshell, National Insurance is a tax on earnings (or profits if you’re self-employed). You start paying NICs from the age of 16 if you earn more than £242 a week from one job. 

Your contributions go towards funding state benefits, such as the state pension, jobseeker’s allowance and maternity leave. 

They’re also key to helping you access your own State Pension. When you pay NICs you earn National Insurance credits. You need 35 qualifying years to get the full State Pension. 

In the years you’re not earning enough to pay National Insurance, say if you take time off work to care for children, you could still be eligible for credits. 

For example, you get them automatically if you claim Child Benefit, Jobseekers Allowance and Carers Allowance. You can also fill any gaps by making voluntary contributions. 

So, what’s changing?

The National Insurance rate has been cut – again. The first reduction came on January 6 taking it from 12% to 10%, on earnings between £12,750 and £50,270 a year. 

The changes were announced in November’s Autumn Statement by Chancellor of the Exchequer, Jeremy Hunt, who claimed the average employee £450 a year (based on a £35,400 salary).

And from 6 April, employees will pay a rate of 8% – a cut of two percentage points – adding almost £900 to the take-home annual pay of an average worker since January.

What isn’t changing is the 2% National Insurance rate on earnings above £50,270.

How much will I save?

Let’s have a look. The chart below gives you a general idea of how much more you’ll be taking home, following the cuts, based on your annual salary:

SalaryNI saved from April 2024 (compared to 2023)
Source: AJ Bell

It’s good news for lots of people who’ll be paying less National Insurance and there’s huge savings if you’re a higher earner.

BUT (and this is a big but), while a cut to National Insurance is great, and will result in savings for millions of people, what the Government has given with one hand, it has taken with the other. 

What a (fiscal) drag!

By keeping tax thresholds frozen until 2028, more and more people will be pulled into the basic and higher tax brackets. This is known as the rather catchy term, ‘fiscal drag’. And it really is.

What it means is, the extra income tax many of us will be paying in the next few years will eat into the savings we’re making on National Insurance. In fact, if you earn below £26,000 you’ll be worse off as will those on salaries over £60,000.

The chart below, lays out exactly how much more tax you’ll be paying as a result of fiscal drag:

SalaryExtra tax you’ll pay annually
Source: AJ Bell

Only middle-earners will benefit overall, whereas lower and higher-earners will be hit by much more tax.

What if I’m self-employed?

If you work for yourself, you’ll see changes to your Class 4 and Class 2 NICs from April 6. The main rate of Class 4 NICs will reduce from 9% to 6% on profits between £12,570 and £50,270. The 2% charge above this is not changing. 

Class 2 NICs are being scrapped altogether. These were a fixed weekly cost of £3.45 for people with taxable profits of more than £12,570 a year.

If you earn between £6,725 and £12,570, you’ll get National Insurance credits automatically. And if you earn less than £6,725 you can still buy Class 2 NICs to build up your qualifying years so you can access benefits such as the State Pension.

If you earn annual profits of £28,000, you’ll save £650 a year, from both changes. 

3 thoughts on “National Insurance rate cut: will you be better or worse off?

  1. Because of the freeze of tax thresholds, my understanding of what’s being said is that, pay increases have taken people into the higher tax bracket, because the threshold is frozen.
    If you pay less N.I, as in you get more money, that too may take you into the next tax bracket for some, or will be taxed on 40% if your already in the higher tax bracket. Hence middle earners comment.

    So the savings you make on N.I will then be taxed at 40%…(those in or pushed into higher tax).

  2. Bruce Dickinson April 5, 2024 at 3:49 pm

    But … surely the reduction in National Insurance and the freezing of tax thresholds are different things. Yes, it’s true that if the income tax thresholds had increased as they traditionally did, then people would be paying less tax overall, but that is irrelevant to the NI reduction. Paying less NI means that everyone who earns above £12,750 will have more take home pay. This is – and would have been – the case regardless of the income tax thresholds.
    The freezing of tax thresholds does not actually make anyone worse off; it just doesn’t make us as ‘better off’ as we might have otherwise been. (Please correct me if I am wrong – which is very possible!)

  3. Your article applies to those in England and Wales. What about Scotland?


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