The poorest people in Britain will save just 63p a month from a reversal in the National Insurance (NI) hike, a new study says, while those on more than £100,000 a year will gain the most.
On Friday, the new Government will set out its economic plans in a mini-budget, with chancellor Kwasi Kwarteng expected to announce various tax cuts. He is also weighing up scrapping the cap on bankers' bonuses.
One of the key pledges from Prime Minister Liz Truss' leadership campaign was to reverse April's 1.25% percentage point increase in NI, and this policy is also expected to be among the measures outlined on Friday.
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However, analysis from the Institute of Fiscal Studies (IFS) suggests that the move will overwhelmingly benefit richer Britons. The NI hike was designed to support the NHS and social care as it deals with massive backlogs, so there are also fears that these services will struggle for funding if the increase is reversed.
The IFS study found that the wealthiest tenth of households, earning an average of £108,000 will save £1,800 on tax annually from the move, equivalent to £150 a month. In contrast, the poorest 10%, who earn an average of £12,000, will save just £7.66 a year - which equates to 63p a month, or 14p a week.
Those on the average UK income of £31,400 are set to save around £20 a month, while those earning £55,000 will gain almost three times that, at £58 a month.
"Reversing the recent NICs [national insurance contributions] rise would tend to benefit richer households more than poorer ones, even as a share of their income," said Tom Waters, a senior research economist at the IFS.
Tony Wilson, director of the Institute for Employment Studies, told The Times the plans were a "tax giveaway to relatively high earners" and risked fuelling inflation. "The worry among Bank of England and Treasury officials will be that the move is more inflationary than a more targeted subsidy or tax cut," he said.
The 1.25 percentage point rise in national insurance came in in April, with the previous government calling it a health and social care levy. But Ms Truss argues that scrapping it will boost UK growth.
Other expected measures that will benefit the wealthy include the anticipated axing of next year's planned rise in corporation tax from 19p to 25p, and Mr Kwarteng's desire to remove the 2014 cap on bankers' bonuses. The chancellor argues this will make London more attractive to international bankers, while critics say it will lead to the kind of increased risk taking that lead to the 2008 financial crisis.
The cost of these policies has raised fears that the Bank of England will increase interest rates further to curb inflation. This could require the Government to break its own fiscal rules, which require debt to be falling as a share of national income by 2024 and no borrowing for day-to-day spending.
Ms Truss has said that tax cuts, such as the reversal in the NI hike, will "reward hard work and boost business-led growth and investment." Source: My London
