While much of the focus is on Boris Johnson’s future as Prime Minister, a tax cut that was brought in by the now former Chancellor Rishi Sunak to help ease the cost of living crisis has come into force.
With inflation soaring to a record 9.1% in May 2022 - the worst rate in Western Europe - households up and down the UK have seen their spending power decrease notceably.
In a bid to tackle these price rises, the government has so far announced three major packages of support to help Brits struggling to afford rocketing food prices, energy bills and fuel costs.
Nadhim Zahawi’s predecessor as Chancellor announced a council tax rebate - the rollout of which has been delayed in some areas - an energy bills discount and state handouts to the poorest UK households.
But the policy which has been deemed as the most effective by money experts, including Martin Lewis, is a National Insurance tax cut Mr Sunak announced in his Spring Statement.
So what does this tax cut mean for your finances - and how can you see what it could save you?
What is National Insurance?
National Insurance is a tax most working people pay out of their monthly pay packets.
These contributions are used by the government to fund state pensions as well as other state benefits, such as Universal Credit.
What you pay depends on how much you earn and whether you’re employed or self-employed, but everyone can earn a certain amount of money before having to pay anything.
This is known as the National Insurance threshold.
How have National Insurance contributions changed?
The threshold for National Insurance contributions was £9,880 but has now been increased to £12,570 for people categorised as Class 1 (employed) and Class 4 (self-employed).
What this change means is that you can earn an extra £2,690 before paying anything towards National Insurance.
You still have to pay a rate of 13.25% on anything earned between the new threshold and £50,270.
Any salary you take home over £50,270 will continue to be charged at 3.25%.
According to government estimates, the new threshold means almost 30 million workers - around 70% of the UK workforce - are paying less tax.
This is despite the introduction of the health and social care levy, which has pushed up National Insurance contributions by 1.25%.
Here’s an estimation of what you now pay annually in NICs depending on how much you earn (according to the government):
- £20,000: you will pay £983.64 (£291 less than the £1,274.61 due in 2021/22)
- £30,000: you will pay £2,308.68 (£197 less than the £2,505.84 due in 2021/22)
- £40,000: you will pay £3,633.72 (£103 less than the £3,737.10 due in 2021/22)
- £50,000: you will pay £4,958.64 (£10 less than the £4,968.36 due in 2021/22)
- £60,000: you will pay £5,310.48 (£84 more than the £5,226.39 due in 2021/22)
Given National Insurance is paid on commission or bonuses, overtime, sick pay, maternity, paternity and adoption pay, as well as salary for Class 1 employees, the above figures may be differ from what tax you actually pay.
These figures also do not take into account the three months of the heightened rate of National Insurance contributions introduced in April as a result of the health and social care levy.
If you want to check how your specific salary will be impacted, the government has a National Insurance calculator on its website.
When did National Insurance contributions change?
The date from which the National Insurance threshold changes came into force was 6 July 2022.
The policy will now be in place until 5 July 2023, by which time the government and economic experts predict the UK cost of living crisis will have improved from this year’s record levels.