What the emergency mini-Budget could mean for personal finances in pounds and pence

New calculations from interactive investor reveal how much workers could be better off if the 1.25% National Insurance uplift U-turn and 1p income tax cut are announced in Friday’s emergency mini-Budget.

New calculations from interactive investor, the UK’s second-largest DIY investment platform, reveal that workers earning £30,000 could be £392 better off if the 1.25% National Insurance (NI) uplift U-turn and 1p income tax cut are announced in Friday’s emergency mini-Budget.

The figure rises to £842, £1,517 and £1,967 for someone earning £50,000, £80,000 and £100,000, respectively.

National Insurance

The 1.25% uplift in NI (up from 12% to 13.25%) which came into effect in April this year to help fund the NHS and social care, could be scrapped in the emergency mini-Budget.

This would result in an annual saving of £218 for someone earning £30,000, rising to £468 for someone earning £50,000. Workers with an annual salary of £20,000 would save £93 under the policy, while someone earning £80,000 would be £843 better off - £1,093 for someone on a £100,000 yearly wage.

• Learn more: What is a SIPP | ISA vs SIPP | SIPP Tax Relief Explained

Income tax

The prospect of the 1p income tax cut, originally earmarked for 2024, being brought forward has also been mooted.

This would amount to tax savings of £74 for workers earning £20,000, £174 for someone earning £30,000 and £374 for someone with a £50,000 pay packet. The figure is £674 and £874 for employees with an income of £80,000 and £100,000, respectively.

Income tax threshold

The government is also reportedly mulling upping the higher-rate income tax threshold to £80,000 from £50,270 currently. For workers earning above the £80,000 threshold, this could result in a tax saving of £5,946.

Source: interactive investor

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The government has a tricky balancing act of helping consumers through the unprecedented cost-of-living storm without adding fuel to the inflation fire, while trying to reinvigorate the UK economy.

“Tax cuts seem the current favoured route, and while we assess the impact on workers’ pockets, time will tell the wider impact.

“Tax cuts would put more pounds in taxpayers’ pockets at a time when they need it most to combat raging inflation. Tax cuts, in tandem with the government’s pre-existing multi-billion-pound cost-of-living support measures which includes the recently announced energy price cap freeze, might mean that the cost-of-living squeeze will be less scary than previously predicted for many.

“The highest earners could be in line for the biggest savings if the higher income band threshold is raised to £80,000. Someone who earns £80,000 would save £7,463 from the reversal of the 1.25% uplift to NI, the 1p income tax cuts and the raising the income tax threshold to £80,000 – rising to £7,913 for someone earning £100,000.

“Whether the measures will be enough to pull the UK economy out of the inflation stoked malaise remains to be seen. The concern is the need to address swelling public debt after the colossal spend on Covid and cost-of-living support measures has been kicked the into the long grass.”

Alice Guy, Personal Finance Expert, interactive investor, says: “Kwasi Kwarteng has promised to reverse the NI rises, but he has various options. It seems likely NI rate will drop back to 12% for the lower rate and 2% for the higher rate, but it’s not yet clear if Kwarteng will revert to the previous lower NI threshold. Not dropping the threshold would result in a bigger net tax cut and lower the total NI tax take from the 2022/23 level.

“Scrapping the 1.25% National Insurance uplift would save around £218 per year for a middle earner on a salary of £30,000, whereas a higher earner on £50,000 would save around £1,093 per year. There would be no change for many lower earners.

“When it comes to income tax, raising the higher rate threshold to £80,000 would save a massive £6,620 per year for someone earning £80,000, although the saving could be slightly offset by lower pension tax relief, as they would receive a lower top-up for money paid into their pension scheme.

“But there’s no such thing as a free lunch, and critics argue that Chancellor of the Exchequer Kwasi Kwarteng’s plans would increase the level of government debt and could force tax rises or cuts to public services in the future. The tax cuts, by giving consumers more money to spend, could heap coals on the fire of red-hot inflation, prompting higher interest rate rises in the future.”