In a surprising turn of events, data suggests that higher-rate tax-paying earners with children emerged as the biggest winners in the recent Budget announcement.
Chancellor Jeremy Hunt’s decision to implement a 2p cut to National Insurance (NI) and raise the child benefit threshold to £60,000 is proving to be a significant boon for certain demographics.
Sweeping Changes for Parents
The Budget revealed a 2p reduction in National Insurance contributions, bringing the rate down from 10% to 8%.
This follows a similar cut that took effect in January, resulting in a near £450 per year boost for an average earner with a £35,000 income.
However, those surpassing the higher-rate threshold of £50,270 stand to gain the most significant savings, with NI contributions dropping by £754 annually from April.
Additionally, Jeremy Hunt addressed the high-income child benefit charge, a point of contention since its introduction in 2013.
The threshold for this charge will increase from £50,000 to £60,000, with the withdrawal threshold rising to £80,000. The complex system is set for a future overhaul, transitioning to assess household income by 2026.
Impact on Parents
For a couple earning £60,000 with two or more children, the combined effect of NI cuts and child benefit changes translates to a substantial annual saving of £5,229, or £435.75 per month.
Those with three children could see an extra £6,110 annually. Even a single earner on £60,000 with two children stands to save £3,721 yearly, or £318.42 monthly.
However, these changes primarily benefit those earning under £60,000, as they receive a marginal tax cut through NICs but already enjoy full child benefit.
In contrast, those with incomes between £80,000 and £100,000 will experience a £3,016 annual increase, deriving the full NI saving without child benefit enhancement.
Criticisms and Unaddressed Demographics
Despite the positive impact on certain groups, criticisms have surfaced. Those earning above £80,000 won’t benefit from child benefit changes but may suffer from frozen tax thresholds, pushing more of their income into the higher-rate tax category.
Parents with incomes over £100,000 face the double whammy of the 60% tax trap due to the removal of personal allowance and the loss of free childcare hours.
Moreover, pensioners over the state pension age won’t benefit from the NI changes, raising concerns about their increased living costs.
Mixed Reactions and Future Considerations
While these changes provide substantial relief for working parents, they come against a backdrop of frozen income tax bands, escalating personal taxation, and rising living costs.
The focus on younger cohorts over older individuals, especially pensioners, has drawn criticism. Despite these concerns, Chancellor Hunt’s dessert trolley of handouts includes a significant rise in the state pension by 8.5% from April.
Business News