National insurance cut would benefit richest households by 12 times more than poorest

Cutting national insurance by 1p would hand billions to the richest households while offering much less to those who need it most, analysis by the New Economics Foundation (NEF) has found.

If the chancellor announces a 1p cut to national insurance in this week’s budget, it will benefit the richest 20% of households 12 times more than poorest 20%, with those on the highest incomes receiving an additional £424 per year compared to £34 per year for those on the lowest.

It means £2bn of the £4.8bn tax cut will go to the wealthiest, while the poorest will benefit by just £160 million.

At the same time, households in London and the South East will be the biggest winners, gaining £252 per year on average compared with a £175 annual increase for households across the North.

NEF analysis shows that this cut would bring 55,000 more people into relative poverty. Investing the same amount (£4.8bn) into Universal Credit would instead lift 384,000 people out of relative poverty, by providing all recipients with an additional £720 per year. This would help improve living standards for millions and help strengthen our economy.

Sam Tims, senior economist at the New Economics Foundation said:

“Everywhere you look, from our schools to hospitals to high streets, our country is falling apart at the seams while millions of people struggle to get by. Yet at the same time our chancellor is pushing for tax cuts that the country does not want, and that will benefit those who already have the most.

“Not only will this reduce government income in the immediate future, but it will also worsen inequality making us all poorer and harming the country’s prospects.

“The responsible way of running our economy is to borrow to make smart investments that boost our economy and improve people’s lives. We should raise money by increasing taxes on the very wealthiest. Investing in our schools, hospitals, housing, and income safety net creates economic benefits and helps everybody live happier, healthier lives.”

Notes

The New Economics Foundation is a charitable think tank. We are independent of political parties and committed to being transparent about how we are funded.

Figure 1: Cutting national insurance will deepen inequalities at a time when we need public investment

Change in annual household income in 2024/​25 from a 1p cut to the basic rate of national insurance and a £60 per month addition to Universal Credit, by income vingtile

Source: NEF analysis of the Family Resources Survey using the IPPR tax-benefit model.

Note: The bottom 5% of households are removed due to unreliability.

Figure 2: National insurance cut would give £2bn to high-income households while poorest receive £160m

Distribution of a 1p cut to the basic rate of national insurance in 2024/​25, by income quintile

Source: NEF analysis of the Family Resources Survey using the IPPR tax-benefit model.

Figure 3: Cutting national insurance will deepen regional inequality

Change in annual household income in 2024/​25 from a 1p cut to the basic rate of national insurance, by region

Source: NEF Analysis of the Family Resources Survey using the IPPR tax-benefit model