As the UK prepares for a two-percentage-point drop in Class 1 National Insurance contributions from January 6, excitement lingers in the air for a tax relief. However, this celebration might be short-lived for many Britons, warned tax experts at Hargreaves Lansdown.

Despite the announced decrease in National Insurance contributions from 12 percent to 10 percent, Sarah Coles, head of personal finance at Hargreaves Lansdown, cautioned that numerous individuals might find themselves bearing heavier tax burdens in the near future.

“An awful lot of people will still pay more tax assuming there’s no immediate income tax cut,” Coles mentioned. Highlighting the Office for Budget Responsibility’s (OBR) projections, she expressed concerns about a continuous rise in the tax burden till April 2029, reaching a staggering 37.7 percent of GDP, the highest since World War II.

Coles outlined the impending scenario, indicating an increase in the number of taxpayers across different brackets: “By the end of the forecast, there will be four million more people paying income tax, three million more in the higher rate, and an additional 400,000 in the top bracket.”

This unwelcome trend emerges due to escalating incomes, leading to higher tax liabilities, compounded by the stagnation of several tax thresholds. While hopes remain for a potential income tax cut in the Spring Budget, anticipated to woo voters ahead of the General Election, its implementation might delay until 2025, according to experts.

Looking ahead, Hargreaves Lansdown’s financial outlook for the coming year includes predictions of declining interest rates. Despite expectations of a gradual reduction, the Office for Budget Responsibility foresees rates maintaining at four percent by the close of 2028/2029.

“The timing of the initial rate cut remains uncertain,” Coles remarked, suggesting a varied forecast between spring and winter the following year. However, she emphasized the unlikelihood of any cuts until at least the summer, foreseeing a cautious approach by the Bank of England due to inflation concerns.

Moreover, the group anticipates a continued decline in savings rates as Bank of England rate increments seem to have halted. Coles indicated a gradual decline in rates throughout the year, underscoring the heightened importance of exploring different avenues for potentially higher returns.

“As rates fall, shopping around becomes pivotal,” Coles advised. “Consider redirecting your savings from mainstream banks to smaller institutions or newer platforms to maximize your returns.”

With financial landscapes poised for shifts in taxes, interest rates, and savings returns, Britons are urged to remain vigilant, explore alternatives, and brace themselves for potential tax hikes despite the much-anticipated National Insurance cut.

Erica Murray

As a Junior Editor, Erica Murray infuses fresh perspectives into our newsroom. Her enthusiasm for uncovering untold stories and attention to detail enriches our coverage. Erica's dedication to accuracy and her ability to capture the essence of each narrative adds depth to our content.