UK Government Announces National Insurance Tax Cut but Fiscal Drag Impacts Workers

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The UK government has announced a reduction in National Insurance tax for workers from 12% to 10%, aiming to provide relief amid a cost-of-living crisis. However, the benefits of this tax cut may be offset by existing freezes on personal tax thresholds, known as "fiscal drag," which push more individuals into higher tax brackets as nominal wages rise. While the tax cut is touted as the "largest ever tax cut for workers," the continued impact of threshold freezes is expected to contribute significantly to government revenues over the coming years. Younger workers may bear the burden of funding future spending commitments as the population ages and retirement costs increase.

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