National Insurance Contributions (Reduction in Rates) (No. 2) Bill: HL Bill 54 of 2023–24

The changes, which would come into force for the new tax year starting 6 April 2024, would see primary class 1 NICs reduced by 2 percentage points from 10% to 8% (this is the main rate paid by employees) and the main rate for self-employed class 4 NICs reduced from the previously announced rate of 8% down to 6%. This follows earlier NICs reductions announced in the autumn statement and legislated for in the National Insurance Contributions (Reduction in Rates) Act 2023. This reduced primary class 1 NICs from 12% to 10%, starting on 6 January 2024, and had legislated for a reduction in the class 4 NICs from 9% to 8% starting from 6 April 2024. Therefore, as a result of both sets of legislation, class 4 NICs would effectively reduce 3 percentage points for the new tax year.

The government said that the changes would make the tax system fairer and incentivise work. It estimated that they would reduce the NICs paid by 29 million workers. The Office for Budget Responsibility said that the reductions would cost the exchequer £10.3bn a year, but could increase hours worked up to the equivalent of an additional 98,000 full-time workers. However, many commentators, such as the Institute for Fiscal Studies, have highlighted that the changes would have less benefit to some earners and would not counteract the impact of planned tax threshold freezes for most. It said that the majority of workers would still be facing a higher tax burden over the coming years. Concerns have also been raised about future public spending cuts that may be necessary to cover the costs of the government’s tax reduction policies.

The bill passed all its House of Commons stages on 13 March 2024. Labour supported the bill. However, it was not supported by the SNP or the Liberal Democrats. The bill is due to receive its second reading in the House of Lords on 18 March 2024.