Jeremy Hunt is set to cut national insurance by a further two percentage points in the budget tomorrow, Sky News understands.
This cut follows a similar reduction in the levy announced at last year’s autumn statement, and comes as the Conservative government looks to set the fiscal stage for the election set to take place in the next 12 months.
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Cutting national insurance is cheaper than changing income tax, as fewer people pay it.
But it also means that those who don’t pay NI won’t see a benefit, including the key Conservative demographic of pensioners.
The cut announced last year – which came into force this year – saved the averaged salaried worker on £35,400 a total of £450 a year according to the government.
However, the Institute for Fiscal Studies thinktank calculates that only those on higher salaries will see a benefit from a national insurance cut.
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This is due to the freezing of income tax bands – known as fiscal drag – where salaries rise, but the threshold for higher taxes don’t, so people pay more in income tax.
The IFS say only those earning between £40,000 and £53,000 gain more from a cut to national insurance than they lose to frozen tax bands.
Mr Hunt has been under pressure to cut taxes in some way in order to boost the Conservative Party’s chances heading into the next election.
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Speaking to Sky News, former home secretary and Treasury minister Dame Priti Patel said: “You know, this is a government that has frozen the thresholds around levels of taxation in particular, so more and more people are now being caught through fiscal drag and paying higher rates of tax.
“And I think that is one area where, as Conservatives, we should do more to show that we back working households, we back working people, by effectively, you know, raising those thresholds to mean that they can keep more of the money that they earn.
“I’d like to see much more of that because we’ve seen inflation being higher, cost of living, you know, really cutting into people’s incomes.
“And I think people now want a breather – they basically want to be able to keep more of what they earn.”
The government has also been considering adopting the Labour policy of reforming the non-dom tax status in order to boost its incomings.
Money is tight for government amid high interest rates being paid on debt and low growth in the economy.
Mr Hunt has hinted that public budgets may be cut in order to fund the tax cuts heading into the election.
Paul Johnson, the director of the IFS, told Sky News that any reduction in rates will need to be undone after the election.
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