Tax expert Dan Neidle has urged new Labour Chancellor John Healey to prioritise cutting National Insurance over raising the personal tax-free allowance. Neidle, of Tax Policy Associates, cautioned against reports that the government might increase the personal allowance, which has been frozen at £12,570 since April 2021.
Personal Allowance Freeze Costs Taxpayers £700 a Year
Had the allowance risen with inflation, it would stand at £16,070 today. The £3,500 shortfall costs a basic-rate taxpayer £700 annually. Neidle acknowledged the appeal of increasing the allowance, calling it simple, progressive, and effective at keeping low incomes out of tax. However, he argued that a cut to National Insurance would be more beneficial.
“It is not crazy to increase the personal allowance. But it is not what I would do,” Neidle said. Instead, he recommended that if £6bn is available for tax cuts, it should be spent on the rate rather than the threshold.
1p NI Cut Would Benefit Most Workers
Neidle explained that a 1p cut in employee National Insurance would give most workers more money than a £500 rise in thresholds, reward work, and narrow the gap between taxation of earned and unearned income. He also warned that if the allowance rises, the additional rate threshold must increase proportionally to avoid creating a 67.5% tax rate at £126,000.
The call comes as Prime Minister Andy Burnham dismissed the prospect of further referendums during discussions with leaders of Scotland, Wales, and Northern Ireland. A Downing Street spokesperson said Burnham is focused on practical measures, such as helping households with energy bills, rather than constitutional changes.
