The national insurance rise introduced by Boris Johnson’s government will be reversed from 6 November, Kwasi Kwarteng has announced.
Ahead of his mini-budget on Friday, the chancellor confirmed that he was canceling the 1.25-percentage point increase imposed by his predecessor, Rishi Sunak, to pay for social care and dealing with the NHS backlog.
Kwarteng said he would also be scrapping the planned health and social care levy, which was due to come into effect next April to replace the national insurance rise.
The government tabled legislation in the Commons on Thursday to enact the tax changes. Kwarteng said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
The Treasury said most employees would receive a cut to their national insurance contribution directly via their employer’s payroll in their November pay, although some may be delayed until December or January.
The levy was expected to raise around £13bn a year to fund social care and deal with the NHS backlog that has built up because of the Covid pandemic.
However, Kwarteng said funding for health and social care services would be maintained at the same level as if it were still in place.
The chancellor and Liz Truss have argued that the lost revenues will be recovered through higher economic growth stimulated by the cuts in taxation. But with Kwarteng also preparing to scrap a planned rise in corporation tax, some economists have warned about the sharp rise in government borrowing.
The Institute for Fiscal Studies said the plan to drive growth was “a gamble at best” and that ministers risked putting the public finances on an “unsustainable path”.