I don’t normally “do” politics on this blog, but claims in Budget 2018 have irritated. Particularly the assertion that someone warning £50,000 “will be £860 a year better off from next April.”
An analysis of the numbers shows that this is not even an exaggeration, it is simply a lie!
For the purpose of this analysis, I have assumed a salary of £50,000 – simply as this aligns with the increased Higher rate threshold.
At first glance, the numbers stack up…
But hidden in the small-print of the budget was the (expected) statement that the NI Upper Earnings Limit would increase in line with the Higher Rate threshold; the lower thresholds are also increased…
The changes to the National Insurance thresholds also affect the NEST pension contributions… while this is optional, it is opt-out, and probably not a bad idea…
Together the NI and NEST changes swallow up half of the claimed saving.
The Sting In The Tale
Unannounced in this Budget, not even in the small print – because it relates to implementation of a long-announced change – is that for 2019/20 the contribution rate for NEST increases from 3% (2.5% nett) to 5% (4.17% nett).
In conclusion, while the headline Income Tax saving of £860 is welcomed, all other things being equal, workers earning £50,000 will be worse off by £212 a year.
Other than providing an opportunity for stealth taxes, now that the contributory basis of NI is no longer relevant, there is no justification for maintaining separate employment income tax and NI. Rather than raining the basic rate threshold, future budgets should raise the NI lower earnings limit to harmonise it with the tax threshold – at which point, employment income tax and NI should be merged (with their current combined rates of 0%, 32%, 42% and 47%).
Pensions, interest and dividend income can retain their existing rates.