The increase in national insurance introduced by Boris Johnson’s government will be reversed from November 6, UK's new Chancellor of the Exchequer Kwasi Kwarteng announced on Thursday.
Ahead of his mini-budget on Friday, Mr Kwarteng confirmed that he was cancelling the 1.25 per cent increase imposed by Rishi Sunak when he was chancellor to pay for social care and dealing with the backlog in the National Health Service.
Mr Kwarteng said he would also scrap the planned Health and Social Care Levy, which was due to come into effect next April to replace the national insurance rise.
The government tabled legislation in the House of Commons on Thursday to enact the tax changes.
In a statement, Mr Kwarteng said that “taxing our way to prosperity has never worked” and that the UK must be “unapologetic” about growing its economy.
“Cutting tax is crucial to this — and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increase staff wages, the reversal of the levy will help them grow, while also allowing the British public to keep more of what they earn.”
The UK Treasury said that most employees will receive a cut to their national insurance contribution directly via their employer’s payroll in their November pay, although some may be delayed until December or January.
The levy was expected to raise around £13 billion ($14.7bn) a year to fund social care and deal with the NHS backlog which built up during the Covid-19 pandemic.
However, Mr Kwarteng said funding for health and social care services will be maintained at the same level, as if the increase was still in place.
The Chancellor and Prime Minister Liz Truss have argued that the lost revenue will be recovered through higher economic growth stimulated by the tax cuts.
But with Mr Kwarteng also preparing to scrap a planned rise in corporation tax, some economists have warned of the sharp rise in government borrowing.
The independent Institute for Fiscal Studies said the government's plan to drive growth was “a gamble at best” and that ministers risked putting Britain's public finances on an “unsustainable path”.