The main National Insurance rate will be reduced by two percentage points, from 12% to 10%, on Saturday.
The move, announced in a manifesto last autumn, was hailed by the Conservatives, but Labor described it as a “raw deal” and economists said many households still faced the burden of higher taxes.
Chancellor Jeremy Hunt said the pre-election cut meant two-earner families were almost £1,000 better off.
Ministers have previously said the main rate cut for employees is a £450 tax cut for the average employee on £35,400 in 2024/25.
Prime Minister Rishi Sunak, who has said he wants to continue to cut people’s taxes if possible, said this was possible because of the “difficult decisions” made by the government.
The Chancellor said: “Today’s 2% reduction in National Insurance means that a typical two-parent family will be around a thousand pounds better off this year.
“This is really important in a cost of living crisis where people are feeling real pressures on household budgets, but it also rewards work, it will bring more people into the workforce and that is good for growing the economy.”
He added: “It’s the beginning of the process. As a chancellor, if I can go forward, I will. I don’t know yet if I can.”
“But we want to do it because it helps families, and it also helps grow the economy, and we believe a lightly taxed economy will grow faster, and ultimately that will mean more money for public services like the NHS.”
The Treasury said HMRC is publishing an online tool to help people find out how much they can save this year from National Insurance contributions.
But financial and economic experts said the frozen tax thresholds, which pushed people into higher tax brackets, would offset the national insurance boost for many people.
The Resolution Foundation predicts that the biggest gains from this year’s tax changes will be for people earning around £50,000, who will particularly benefit from interest rate cuts, while still losing out to some extent from the personal benefit freeze.
Adam Corlett, chief economist at the think tank, said cutting National Insurance was “a smarter choice than the options of cutting income tax or inheritance tax”.
“But for many, especially those earning less than £26,000, today’s tax cut will be offset by the tax rise that will actually come in April, when personal tax thresholds are frozen again.”
The Institute for Fiscal Studies said personal taxes are rising, despite the cut.
She said in a press conference: “This year will see a reduction in the National Insurance contribution rate and an increase in taxes through the planned freeze in income tax and National Insurance thresholds and allowances in April.
“Put the two things together, and you actually see a tax increase overall.”
It found that “an employee earning £35,000 will gain around £130 more from the NIC cuts than they lose from the freeze on thresholds in April this year. Those on slightly higher incomes will gain slightly more than this, while high-paid employees Taxes who earn less than £29,000 will almost all lose out.
This was echoed by Clare Stenton, Head of Workplace Savings at Hargreaves Lansdowne.
“The (percentage) reduction may seem like a lifeline for households after the holiday season, but the reality is that for some employees, this reduction will be offset by a freeze on the personal tax threshold,” she said.
After the Autumn Statement in November, the government faced pressure from Tory MPs to go ahead and cut income tax or inheritance tax.
There is speculation that further tax cuts could be announced in the Spring Budget on March 6, as Sunak prepares to hold a general election later this year.
This may be Hunt’s last chance to make major changes to taxes and spending before voters go to the polls.
Labor has denied Conservative claims they are offering families tax cuts, describing them as a “raw deal”.
Shadow chancellor Rachel Reeves said: “Never have people paid so much in tax and gotten so little in return in the form of public services.
“This is the year of choice, the year in which the British people will deliver their judgment on Rishi Sunak and 14 years of Tory government.”
Meanwhile, the Liberal Democrats are calling for a cost-of-living rescue package for the “squeezed middle class.”
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