Employee National Insurance rates cut by 2p in January 2024

Employee National Insurance rates fell by 2p in January 2024, and the rate paid by the self-employed fell by 1p, according to the Resolution Foundation¹. The think tank, which published its analysis on 12 March 2024, describes the January reduction as preceding a further cut: "The centrepiece of Jeremy Hunt’s Spring Budget was a 2p cut in employee and self-employed National Insurance rates", it says, "to follow January’s 2p cut in employee rates (and a 1p cut in the rate for the self-employed)"¹.

The Resolution Foundation puts the cost of the combined National Insurance reductions at £10 billion a year, describing them as "a helpful reform to the system" that reduces "the tax distortions working against employees and against those under the state pension age"¹. It notes that National Insurance does not apply to unearned income, nor to the earnings of people over state pension age, so the cuts are "worth nothing directly to pensioners"¹.

The same analysis sets the National Insurance changes against other tax and benefit decisions. It says policies announced since 2019, including the six-year freeze to tax thresholds, will cut pensioners' incomes by an average of £900 a year, with the largest losses among those on the highest incomes¹. The freeze to Income Tax thresholds alone will lead to an average loss of £770 a year for 8 million taxpaying pensioners, it says¹. Across all permanent tax and benefit changes announced since the 2019 General Election, pensioners in the bottom 20 per cent of the income distribution will see their incomes rise by £170, while those in the top 20 per cent will see them fall by £3,100¹.

Taking a longer view back to 2010, the foundation says pensioners are on average £1,000 better off once the Triple Lock and the New State Pension are included¹. It reports that middle-income pensioner households gain £1,400 on average, those in the poorest fifth gain £560, and only the richest 5 per cent lose overall, by £1,800 on average¹. The State Pension grew by 60 per cent between 2010-11 and 2023-24, against a cumulative change in both prices and earnings of 46 per cent, while the basic rate of working-age benefits rose by 30 per cent over the same period¹.

Why it matters for households

The January 2024 change reduced the rate deducted from employees' pay and from the profits of the self-employed, so take-home pay rose for those affected from that month¹. Because National Insurance is charged only on earnings, and not on people over state pension age, the reduction did not change the deductions of pensioners who have stopped working, and it did not apply to income from savings, investments or rent¹.

For pensioners who still pay Income Tax, the foundation's figures point to the threshold freeze rather than National Insurance as the main pressure: an average loss of £770 a year for 8 million taxpaying pensioners¹. Its distributional analysis finds that, across this Parliament's permanent tax and benefit measures, only the lowest-income pensioner households gain, by £170, while the top fifth lose £3,100¹.

The longer-term picture it draws is of pensioner incomes rising faster than those of working-age people, driven by the Triple Lock and the New State Pension, which applies to those who reached state pension age from April 2016¹. It reports that the relative poverty rate for pensioners fell from a peak of 41 per cent in 1989 to 18 per cent in 2021-22, and that in 2021-22 only 16 per cent of pensioners were in the bottom fifth of the overall income distribution¹.

What happens next

The Resolution Foundation's analysis covers measures it expects to still be in place by 2027-28, and excludes temporary support such as higher Winter Fuel Payments during the cost of living crisis and the Household Support Fund¹. It does not set out further rate changes beyond those already announced.