Chancellor announces £3,000 increase in NICs threshold in Spring Statement

The Chancellor announced in the Spring Statement that the threshold at which employees start paying National Insurance contributions would rise by £3,000, rather than the £300 previously proposed, saving all but the lowest earners £330¹. The change takes effect in July, when the new threshold of £12,570 aligns with the income tax personal allowance¹. The Resolution Foundation put the cost of the threshold increase at £6bn².

From July, all employees will pay tax and National Insurance at a combined rate of 33.25% on earnings over £12,570, and all workers will get a tax-and-NICs-free allowance of £1,050 a month, or £80.40 a week¹. The Resolution Foundation described the threshold rise as "the most progressive option out there" for cutting income taxes, but noted that only £1 in £3 of the gain goes to the bottom half of households, because only those working pay National Insurance and better-off households contain more workers².

The gain is smaller for people claiming means-tested benefits, because benefit awards fall as net earnings rise. For a Universal Credit claimant earning just above the new threshold, the £330 increase in net earnings is offset by a reduction in Universal Credit of a little over £180, leaving a net increase of £150 a year¹. For claimants receiving both Universal Credit and Council Tax Reduction, the combined taper is 64%, and the net increase is not £330 but £120¹. The Resolution Foundation said that for each £1 of tax cut, many Universal Credit recipients see a 55p fall in benefits². Working Tax Credit recipients are unaffected by the clawback because tax credits are based on gross earnings, and will receive the full £330¹.

The Resolution Foundation said that, combined with the freeze to income tax thresholds until 2025-26 and to National Insurance thresholds from 2023-24, employees of working age earning below £34,000 and retirees with incomes below £26,000 are worse off, and that at household level only the top quarter come out on top². It also noted the 1.25% increase in National Insurance rates that takes effect in April¹; the analysis of benefit clawback does not include that rise, and as earnings rise above £12,570 the rate rise cancels out the threshold increase, with anyone earning more than £35,000 paying more tax and National Insurance overall¹.

Why it matters for households

The threshold change applies from July and affects employees paying National Insurance through PAYE; the self-employed are treated differently under the separate National Insurance rules for the self-employed. Because the threshold is aligned with the personal allowance, only one calculation is needed to convert gross to net earnings from July¹. Households with no one in work receive nothing from the change: the Resolution Foundation cites around 5.5 million economically inactive households and over 11 million retired households who face rising bills but gain nothing from the tax cut². The only measure in the statement aimed directly at energy costs was an extra £500m for the Household Support Fund, a discretionary scheme run by local authorities, alongside the £150 rebate on Council Tax bills for homes in Band D or lower¹. The Resolution Foundation projects that the number of people living in absolute poverty, using the 2010-11 poverty line, will rise by 1.3 million, including 500,000 children, in 2022-23². Thresholds that would otherwise rise with prices are covered in our guide to how inflation sets increases to benefits, State Pension and tax thresholds.

What happens next

The 1.25% National Insurance rate increase takes effect in April¹. The higher threshold applies from July¹. The Chancellor proposes to cut the basic rate of income tax by one penny from April 2024¹. The Resolution Foundation projects that working-age incomes at the time of the next election in 2024 will be lower than at the 2019 election, describing it as the worst parliament on record².