National Insurance Contributions (Reduction in Rates) Bill 2023-24

The National Insurance Contributions (Reductions in Rates) Bill 2023-24 was introduced on 23 November 2023. The Bill, with its explanatory notes, is published on the Bill’s page on Parliament.uk. The page also provides details of the Bill’s parliamentary progress.

The Bill completed its remaining stages in the House of Commons on 30 November. It was agreed, unamended, without a division. The Bill completed its scrutiny in the House of Lords on 12 December, and received Royal Assent on 18 December.

What is the purpose of the Bill?

The Bill implements three changes to National Insurance contributions (NICs) which were announced by Chancellor Jeremy Hunt in the 2023 Autumn Statement.

These changes are:

• a cut in the main rate of NICs paid by employees (‘primary Class 1 NICs’) from 12% to 10%. This rate cut would apply from 6 January 2024
• a cut in the main rate of NICs paid by the self-employed (‘Class 4 NICs’) from 9% to 8%. This rate cut would apply from 6 April 2024.
• cancelling the requirement of the self-employed to pay the flat rate NICs charge (‘Class 2 NICs’), which applies when someone’s annual profit exceeds a set threshold (the ‘lower profits threshold’). This threshold is currently £12,570. This change would take effect from 6 April 2024.

These measures would extend and apply to the whole of the UK.

How would the Bill affect the public finances?

The Office for Budget Responsibility (OBR) estimate that taken together these changes to NICs would reduce tax receipts by £9.4 billion in 2024/25, rising to £10.0 billion by 2028/29.

How would the Bill affect taxpayers?

The OBR estimate this tax cut will benefit around 27 million employees and over 2 million self-employed people overall.

The OBR has assessed the impact of the three changes to NICs to be as follows:

• The 2 percentage point cut in the main rate of NICs for employees is estimated to benefit 27.3 million employees in 2024/25.
  • The average annual gain is estimated to be £304 for basic-rate taxpayers, £647 for higher-rate taxpayers, and £707 for taxpayers who pay the additional rate.
• The 1 percentage point cut in the main rate of NICs for the self-employed is estimated to benefit 2.1 million self-employed people in 2024/25.
  • The average annual gain is estimated to be £117 for a basic-rate taxpayer, £322 for a higher-rate taxpayer, and £358 for an additional-rate taxpayer.
• Removing the requirement to pay Class 2 NICs for self-employed individuals with profits above the lower profits threshold is estimated to benefit 1.9 million individuals in 2024/25. The average annual gain is estimated to be £186 per person for this group.

The OBR note that this tax cut offsets just under a quarter of the series of personal tax rises that the Government announced in the 2021 Spring Budget 2021 and the 2020 Autumn Statement. The main personal tax rises from these fiscal events were the freeze in the personal allowance and the higher-rate threshold for the period 2022/23 to 2027/28; and, the freeze in the threshold for employer NICs for the period 2023/24 to 2027/28.  

Freezing tax allowances and thresholds, rather than increasing them in line with inflation, means that, as taxpayers’ nominal earnings rise, more of their income is taxed, and more of what is taxed falls into higher tax bands. This is known as ‘fiscal drag’. The OBR estimates that these personal tax rises will raise a combined £44.6 billion in 2028/29. The Library briefing Fiscal drag: An explainer discusses this phenomenon in more detail.

Further reading

The Library briefing National Insurance contributions: an introduction gives an overview of the National Insurance system.