National Insurance Contributions (Reduction in Rates) (No.2) Bill 2023-24

The National Insurance Contributions (Reductions in Rates) (No.2) Bill 2023‑24 was introduced on 7 March 2024. 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.

All of the stages of the Bill in the House of Commons were completed on 13 May 2024, when the Bill was agreed unamended. The National Insurance (Reduction in Rates) Act 2024 received Royal Assent on 20 March 2024.

What is the purpose of the Bill?

The purpose of the Bill is to implement two changes to National Insurance contributions (NICs) announced by Chancellor Jeremy Hunt in the Spring Budget 2024:

• a cut in the main rate of NICs paid by employees (‘primary Class 1 NICs’) from 10% to 8%.
• a cut in the main rate of NICs paid by the self-employed (‘Class 4 NICs’) from 8% to 6%.

Both of these measures would take effect from the start of the new tax year, 6 April 2024. They would extend and apply to the whole of the UK.

These reductions in the rates of NICs follow two rate cuts which the Chancellor had announced in the 2023 Autumn Statement:

• a cut in the main rate of primary Class 1 NICs from 12% to 10%, from 6 January 2024.
• a cut in the main rate of Class 4 NICs from 9% to 8%, from 6 April 2024.

Provision for these reductions was made by the National Insurance Contributions (Reduction in Rates) Act 2023. Further details are provided in a Library briefing on this legislation.

How would the Bill affect the public finances?

The Office for Budget Responsibility (OBR) estimate that the two NICs rate cuts announced in the Budget would reduce tax receipts by 9.4 billion in 2024/25, and have an average five-year cost of £10.3 billion a year.

How would the Bill affect taxpayers?

The OBR estimate this tax cut will benefit around 27.6 million employees and 2.2 million self-employed people overall.

• The 2 percentage point cut in the main rate of NICs for employees is estimated to benefit 27.6 million employees in 2024/25.
  • The average annual gain is estimated to be £303 for taxpayers who pay the basic rate of income tax, £646 for higher-rate taxpayers, and £705 for additional-rate taxpayers.
  • Taken together with the 2 percentage point cut announced in the Autumn Statement 2023, the combined gains are estimated to be £606, £1,291 and £1,413 respectively.

• The 2 percentage point cut in the main rate of NICs for the self-employed is estimated to benefit 2.2 million self-employed people in 2024/25.
  • The average annual gain is estimated to be £235 for basic-rate taxpayers, £635 for higher-rate taxpayers, and £710 for taxpayers who pay the additional-rate.
  • Taken together with the 1 percentage point cut announced in the Autumn Statement 2023, the combined gains are £353, £946 and £1,058 respectively.

The OBR note that these reductions in NICs reverse around half of the total additional tax revenue raised from the series of personal tax rises the Government announced in the 2021 Spring Budget and the 2022 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.  The OBR estimate that the freeze in the personal allowance with the freeze in these two thresholds will raise £42.7 billion, while the successive cuts in NICs rates will cost £21.4 billion, in 2028/29.

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 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.

The Library briefing Spring Budget 2024: a summary provides a summary of the announcements in the Budget, and an overview of the latest economic forecasts.