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The U.K.’s treasury minister Jeremy Hunt has signaled he intends to cut national insurance in his upcoming Spring Budget this Wednesday in reductions that would lower the tax on workers’ wages — which is used to fund Britain’s welfare state.
Hunt’s plans are expected to see him seek out £9 billion worth of savings elsewhere to balance the books, in a push that could see the Chancellor hike taxes on North Sea oil and gas companies, remove tax breaks for second homeowners, and scrap the non-dom system.
The national insurance system currently sees British workers and self-employed people pay a 10% tax on all weekly earnings from £242- £967, alongside a 2% tax on all earnings above £967 a week — in addition to the country’s income tax.
Britain’s income tax system sees U.K. citizens charged a 20% rate on earnings between £12,571 to £50,270, a 40% tax on income between £50,271 to £125,140, and a 45% tax on anything above £125,140 a year.
The Chancellor of the Exchequer’s cuts would lower national-insurance payments even further after Hunt previously cut the rate in November from 12% to 10% in the government’s Autumn Statement.
National-insurance cuts are viewed by the government as a lower-cost and more pro-growth means of achieving its aims of reducing the U.K.’s tax burden, which is currently at its highest level in 70 years, according to the Institute for Fiscal Studies.
Every 1p cut to national insurance costs the government £4.5 billion in tax revenues, versus £7 billion for every 1p reduction in income tax, as U.K. income taxes are charged on income from sources including savings, property, and pensions, while national insurance is only on wages.
As a proportion of GDP, the U.K. currently has the 16th highest taxes of any of the 38 countries in the Organisation for Economic Co-operation and Development (OECD) at rates of 35.3% of GDP, versus an average rate of 34.04% across the OECD.
The U.K.’s tax rates as a proportion of GDP are mostly below those charged by the country’s European neighbors, but ahead of those charged by the U.S. (27.66%) and developed countries in Asia and Oceania.
| OECD Country | Tax revenue as a % of GDP |
| France | 46.08 |
| Norway | 44.30 |
| Austria | 43.10 |
| Finland | 43.02 |
| Italy | 42.95 |
| Belgium | 42.43 |
| Denmark | 41.89 |
| Sweden | 41.31 |
| Greece | 40.98 |
| Germany | 39.31 |
| Luxembourg | 38.57 |
| Netherlands | 37.99 |
| Spain | 37.52 |
| Slovenia | 37.39 |
| Portugal | 36.41 |
| United Kingdom | 35.30 |
| Poland | 35.19 |
| Iceland | 34.92 |
| Slovak Republic | 34.84 |
| OECD average | 34.04 |
Nonetheless, the U.K. currently has the ninth highest taxes on personal income of any OECD country, in charging average rates of 28.79% versus the OECD average of 23.47%.
For reference, Denmark has the highest taxes on personal income of any OECD country, with rates of 56.07%, while Costa Rica has the lowest rates at just 6.13%. The U.K. tax rate puts it ahead of Belgium and behind Finland in the rankings of OECD countries.
Britain’s corporate tax rate, by contrast, sits significantly below the OECD average at rates of 8.8% which puts it in 22nd place. The U.K.’s relatively low corporate tax rate compares to the 10.23% average rate across the OECD.
Public perceptions around the state of Britain’s public services have also worsened, with polls from IPSOS Mori showing 78% of British people believe public services have gotten worse over the past five years — even as taxes on personal income have increased.
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