Allowance and NI changes: What could Budget 2026 mean for your pay packet?

A higher personal allowance has dominated the Budget headlines - but changes to National Insurance thresholds are also part of the story

When politicians talk about “tax cuts”, the real question for most households is relatively simple: “how much difference will it make to my pay?”

In this case, two separate changes are working together.

First, the personal allowance - the amount you can earn before paying income tax - is set to increase. Second, the threshold at which employees begin paying National Insurance (NI) is also rising.

Neither measure changes the headline tax rates of 10 percent and 21 percent. Instead, both adjust how much of your income is exposed to those rates.

Income tax

Under the current system, a single person can earn £14,750 before paying income tax. From 2026/27, that would rise to £17,000 - an increase of £2,250.

For jointly assessed couples, the combined allowance would increase from £29,500 to £34,000 - a £4,500 uplift.

Because the higher rate of tax remains at 21 percent, the benefit of that allowance increase depends on where your income sits.

For many full-time earners, the additional £2,250 would otherwise have been taxed at 21 percent. That translates into a saving of around £472.50 per year for a single person.

For jointly assessed couples able to use the full uplift, the saving rises to roughly £945 per year.

National Insurance

Alongside the allowance rise, the starting point for employee National Insurance is increasing from £168 per week to £176 per week.

That means workers will pay 11 percent NI on a slightly smaller slice of their earnings.

The Upper Earnings Limit is also rising - from £1,032 to £1,082 per week - before contributions drop from 11 percent to 1 percent.

The rates themselves remain unchanged. What shifts is the banding.

For a worker earning around £35,000 per year, the higher NI threshold reduces annual NI contributions by roughly £45 to £50.

It is not transformative in isolation - but it is additive.

What it means in practice

Let’s take a single employee earning £35,000.

Under the current system, income tax is calculated after a £14,750 allowance. NI begins at £168 per week.

But under the proposed 2026/27 system, income tax is calculated after a £17,000 allowance. NI begins at £176 per week.

The income tax saving is roughly £472.50.

The NI saving adds around £50.

Together, that amounts to roughly £520 per year - or approximately £43 per month.

For jointly assessed households where one partner earns the majority of the income, the combined gain approaches £1,000 per year once tax and NI effects are included.

Where both partners are working, each benefits individually from the higher NI threshold.

Who benefits?

Those earning above the standard-rate band tend to see the largest cash benefit, because the additional allowance offsets income taxed at 21 percent.

Lower earners below the NI threshold see limited change, as they were not paying income tax or NI in the first place.

At the other end of the spectrum, individuals earning above £100,000 may see their personal allowance tapered away. That reduces - and can eventually eliminate - the benefit of the allowance increase.

Analysis

Raising allowances rather than cutting rates is a deliberate design choice.

An allowance increase provides a broadly similar cash benefit to anyone earning enough to use it fully. A rate cut, by contrast, tends to deliver larger absolute gains to higher earners.

The NI change works differently again - it modestly reduces contributions across a wide base of workers by shifting the starting line.

Taken together, the measures do not dramatically alter the overall tax structure. Instead, they fine-tune the entry points.

For many working households, the effect is measured in hundreds of pounds per year rather than thousands. Whether that is felt as meaningful relief will depend on individual circumstances - but mechanically, most employees will retain slightly more of the same salary than before.