Millions of workers will save hundreds of pounds from next month as the 1.25 percentage point rise in National Insurance contributions is reversed.
Liz Truss and Kwasi Kwarteng followed through on their promise to reverse the National Insurance rise with a Commons vote, with the tax cut to come into effect on 6 November.
The planned Health and Social Care Levy, a separate tax which was due to come into force in April to replace this year’s National Insurance rise, will also be scrapped.
The move means that around 28 million workers across the UK will make an average saving of £330 in 2023-24, with an additional saving of around £135 on average this year, according to the Treasury.
It also means that businesses paying National Insurance will get to keep more of their earnings, which ministers hope will be reinvested into the economy and help those struggling amid the rising cost of living.
Around 920,000 businesses are set to save almost £10,000 on average next year thanks to the change.
Chancellor Kwasi Kwartend said: “Reversing the National Insurance rise is a promise delivered. It means an average saving of £330 a year for 28 million workers in the UK, and I’m delighted we will get a step closer to this today as the Bill passes through the Commons."
Mr Kwartend added: “The Bill to cancel the Health & Social Care Levy has just concluded its passage through the House of Commons.
"We’re cutting tax for businesses and people across the country from 6 November. All part of our Growth Plan."
Tax cut reflected in November pay
The new National Insurance rates will take effect on 6 November and most workers should see the effect in their paypacket in the same month.
However, some people may receive the cut backdated in December 2022 or January 2023 due to the complexities of some payroll software systems.
Basic rate taxpayers will gain around £75 on average in 2022-23, rising to £175 in 2023-24, while higher rate taxpayers will gain approximately £300 on average in 2022-23, rising to £700 in 2023-24.
For additional rate taxpayers, the gain will be approximately £1,650 on average in 2022-23, rising to £3,890 in 23-24.
The Prime Minister has promised that the extra cash will still go to the NHS and struggling social care, but is yet to confirm how it would be funded.
The government said the reversal of the National Insurance increase is part of its pro-growth agenda, backing businesses to invest, innovate and create jobs, and to help raise living standards for everyone across the UK.
The Chancellor is set to announce more details of his growth plan in his next fiscal statement at the end of this month.
Mr Kwarteng brought his “medium term fiscal plan” to 31 October, instead of 23 November, after experts warned he must find spending cuts of more than £60 billion if he is to stabilise or reduce the national debt.
The Institute for Fiscal Studies (IFS) said it was not possible to deliver cuts on that scale through efficiency savings and “trimming the fat” and it would require major cuts to public services to get the UK’s finances back under control.