Examining the Chancellor's Plan for Growth

National Insurance and the Health & Social Care Levy

The Government has scrapped the proposed implementation of the Health and Social Care Levy which was due to be brought in from 6 April 2023. This was due to provide additional funding for the NHS and help pay for social care reforms.

The temporary 1.25 percentage point increase to National Insurance through the 2022/23 tax year in advance of the introduction of the HSL will also be scrapped with effect from 6 November 2022. At that point NI rates will drop to their previous percentage levels, as shown below

Dividend tax

Dividend tax was also increased by 1.25 percentage points from 6 April 2022 and again that will fall back to previous levels from April 2023.

Andrew Tully, technical director at Canada Life said

“This is a hugely significant tax cut from the Government today, the largest for over 40 years. However, within the somewhat distracting package of tax changes and freezing of thresholds and allowances, take home pay for many people will still be lower than last year. That’s before taking into account the significant increases in the cost of living and household bills which we are experiencing.

“There will have been a significant amount of money spent in planning for the new Levy, announced around a year ago. The temporary increase in NI was introduced due to the significant development work needed to implement a completely new tax and much of that will have been spent, now needlessly. While the new Levy wouldn’t have solved the social care funding issue the country faces, it did at least recognise the issue and start to work towards solutions. That dilemma of how to pay for social care remains hanging over the country.”

Removing the additional rate and reducing basic rate of income tax

In a range of tax cutting measures in today’s Mini-Budget the Government announced

• The additional rate of income tax, 45% on incomes over £150,000, would be scrapped completely with effect from 6 April 2023
• The reduction in the basic rate of income tax by 1p to 19% will take effect from 6 April 2023, one year earlier than planned
• There will be a four-year transition period for Gift Aid relief to maintain the Income Tax basic rate relief at 20% until April 2027.
• On average, basic rate taxpayers will be £130 better off, and higher rate taxpayers will be £360 better off, in 2023-24 thanks to the cut to the basic rate

Andrew Tully added:

“Reducing the basic rate of income tax will cost the Treasury around £5bn a year, while scrapping the additional rate of tax will cost about £2bn so these are both hugely significant tax cuts. There is a pension planning opportunity for those who can afford to make pension contributions in the current tax year. Additional rate taxpayers will get 45% relief, whereas next year contributions will only receive 40% relief. Basic rate taxpayers who make payments to Relief at Source (RAS) pension schemes will get 20% relief in 2023/24 but this will fall to 19% from April 2024 onwards."