Main primary Class 1 national insurance rate reduced from 12% to 10%

The main primary Class 1 National Insurance rate paid by employees was reduced from 12% to 10% on 6 January 2024. The change was made by the National Insurance Contributions (Reduction in Rates) Act 2023, which received Royal Assent on 18 December 2023 and substitutes 10% for 12 per cent as the main primary percentage in both the Great Britain and Northern Ireland contributions legislation¹.

The reduction applies to earnings between £12,570 and £50,270². The Act states that the amendments come into force on 6 January 2024¹. The date was brought forward: the Autumn Statement in November 2023 set out the cut, and the implementation date was changed from April 2024 to January 2024 on 30 November 2023².

The same Act deals with other National Insurance changes on later dates. It removes the requirement to pay Class 2 contributions, with those amendments coming into force on 6 April 2024¹. Class 2 is currently a flat rate of £3.45 a week, paid by people earning more than £12,570 a year, and can still be paid voluntarily². The Act also reduces the main Class 4 rate for the self-employed from 9% to 8% on profits over £12,570 from April 2024². The Act's Class 4 section has since been struck through in the published text¹.

Estimates of what the Class 1 cut is worth vary with the measure used. Which? reported that someone earning an annual salary of £30,000 will pay £303.35 less in 2023-24 compared to 2022-23, and will save £261.35 in 2024-25 compared with the previous financial year, and that the cut will benefit 27 million people³. Full Fact said the Prime Minister's claim that the reduction is worth £450 to the average worker is true, but that someone with average full-time annual earnings will pay around £450 less in NICs this year than if the rate had remained the same, and that when threshold freezes are taken into account someone on the average salary will save much less⁴. Full Fact also said Labour's shadow chancellor Rachel Reeves claimed an average working family would pay £1,200 more in tax this year, that this was not correct, that Labour confirmed she "misspoke", and that the £1,200 figure refers to a Resolution Foundation estimate of a net personal tax rise of around £1,200 per household by 2028/29⁴.

The OECD records that the main rate of Class 1 NICs paid by employees between the Primary Threshold and Upper Earnings Limit was reduced from 12 per cent to 10 per cent from 6 January 2024, and that the government reduced the main rate further by 2 percentage points to 8 per cent from 6 April 2024⁵.

Why it matters for households

Employees earning between £12,570 and £50,270 pay a lower main rate of Class 1 National Insurance on those earnings from 6 January 2024¹. The size of the change in take-home pay depends on earnings and on the period measured: Which? gives a £303.35 reduction for 2023-24 and a £261.35 saving for 2024-25 for someone on a £30,000 salary³, while Full Fact notes that threshold freezes reduce the saving over time⁴. For people claiming Universal Credit, entitledto said the reduction in NICs will be of least help to low earners who claim Universal Credit, because when net earnings go up Universal Credit goes down, and the gain is in effect clawed back by the 55% taper². Self-employed people face separate changes from April 2024: the end of the Class 2 flat rate and the Class 4 reduction¹. The National Insurance guide sets out the classes and rates, and the comparison of self-employed and employee National Insurance covers the different treatment of the two groups.

What happens next

The Class 2 and Class 4 changes take effect on 6 April 2024¹. The Act also allows the Treasury to make further consequential provision by statutory instrument, including provision having retrospective effect from no earlier than 6 April 2023¹.