National Insurance is to be cut by two percentage points, the chancellor has announced.
In a boost to employee’s pay packets, Jeremy Hunt told the Commons – the main 12% National Insurance rate would fall to 10% from 6 January – saving those on an average salary of £35,000 over £450 a year.
He also abolished NI payments for the self-employed, known as class two national insurance, to recognise the government “values their work”.
Politics latest: Chancellor delivers autumn statement amid pressure in the polls
Delivering his autumn statement in the Commons, the chancellor said: “If we want people to get up early in the morning, if we want people to work nights, if we want an economy where people go the extra mile and work hard then we need to recognise that their hard work benefits all of us.”
However, Sky News’ economics editor Ed Conway said the overall tax burden on the public would still remain at a record high as the government continued its freeze on tax thresholds.
Forecasts from the Office for Budget Responsibility (OBR) showed taxes were still trending upwards, with a post-war high of 37.7% set to be reached by 2028/29 under the current government plans.
They put this down to so-called “fiscal drag”, as while people’s wages may increase, the level at which they start paying tax remains unchanged – and that leads to more people being moved into the higher tax rates.
The OBR said that by the end of the decade, frozen thresholds will result in “nearly four million additional workers paying income tax, three million more moved to the higher rate, and 400,000 more paying the additional rate”.
During his speech, Mr Hunt confirmed Universal Credit would be increased by inflation next April in line with September’s inflation figure of 6.7% – an average increase of £470 for 5.5 million households – despite rumours the government was planning a smaller rise.
And he said the full state pension would go up by 8.5% to £220 per week – worth up to £900 more a year, honouring the Tories’ commitment to the triple lock.
But the chancellor also announced new tougher measures for job seekers, saying those who fail to find work after 18 months of “intensive support” will be given mandatory work placements.
Those who do not engage with the process for six months will lose their benefits altogether.
Mr Hunt also confirmed the much trailed plans to reform the benefits process for those who are signed off work because of sickness or disability.
He called the over 100,000 people signed off each year a “waste of potential” that was “wrong economically and wrong morally”.
As a result, the chancellor said the government would reform the Work Capability Assessment to “reflect greater flexibility and availability of home working after the pandemic”.
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Key announcements from chancellor at a glance
Mr Hunt said: “Our choice is not big government, high spending and high tax because we know that leads to less growth, not more.
“Instead we reduce debt, cut taxes and reward work. We deliver world class education. We build domestic sustainable energy and we back British business”.
And he said while Labour thought “compassion is about giving money, we think it’s about giving opportunity”.
The chancellor added: “I know some on the benches opposite would prefer to fill those vacancies in a different way. They hanker after a more liberal immigration regime or even dream of bringing back free movement.
“But Conservatives say we should unlock the potential we have right here at home, which we do with the biggest set of welfare reforms in a decade.”
Other announcements in the autumn statement included:
Increasing the local housing allowance rate, giving 1.6 million households an average of £800 of support next year
He said he wanted to “reform and simplify taxes paid by the self-employed”, saying the government was abolishing class 2 National Insurance altogether – saving the average self-employed person £192 a year.
He also announced all alcohol duty had been frozen until 1 August next year.
More devolved powers were promised for areas including Hull and East Yorkshire and Surrey.
The chancellor insisted the government’s plan for the British economy was “working” but said the “work is not done”.
Mr Hunt said the measures announced in the autumn statement would reward “effort and work” – as well as “improve the incentive to work”.
The Office for Budget Responsibility (OBR) has upgraded its growth forecast for gross domestic product – a measure of the size of the economy – this year, but downgraded the figure for subsequent years.
The budget watchdog’s forecast in March was for the economy to shrink by 0.2% in 2023, but that has now been revised up to 0.6%.
But in 2024 growth is forecast to be 0.7% rather than the 1.8% expected at the time of the Budget, 2025 is expected to see 1.4% rather than 2.5% and 2026 could be 1.9% instead of 2.1%.
Growth is then expected to go beyond the previous forecast, with 2% in 2027, slightly above the 1.9% predicted in March, with 1.7% in 2028.
“If we want those numbers to be higher, we need higher productivity,” the chancellor said.
The statement follows long-standing pressure from the Tory backbenches to reduce the tax burden on both the public and business, which has been sat at a 70-year high – the highest taxes since records began.
But it also comes as a general election looms, with the Conservatives still lagging behind Labour in the polls.
Mr Hunt claimed the economy was now “back on track” following a reduction in government borrowing and the halving of inflation since last autumn’s record high after Liz Truss’ disastrous mini budget.
However, inflation still sits at 4.6% – double the target of the Bank of England.
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On the eve of the autumn statement, the Treasury confirmed it would be increasing the national living wage, rising from £10.42 to £11.44 from April, and that it will benefit workers aged 21 and over, rather than 23 and over.
It will mean an £1,800 annual pay rise next year for a full-time worker on the living wage, while 18 to 20-year-olds will receive a £1.11 hourly rise to £8.60.
The changes are expected to impact about two million people.
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