The measure was among several announcements made by chancellor Rishi Sunak in his Spring Statement.

Sunak told parliament that workers “would not pay a single penny of National Insurance or tax” until they earned £12,750. He said moving the National Insurance threshold by £3,000 was “the largest increase in a basic rate threshold ever”.

The chancellor also confirmed a cut in the basic rate of Income Tax from 20p to 19p, but not until 2024. He hailed it “the biggest tax cut to personal taxes in over a quarter of a century”.

In other measures, fuel duty will be cut by 5p a litre from tonight until next March, reducing the price of a tank of petrol by around £3. Home insulation materials, such as solar panels, currently liable to 5% VAT, will become zero-rated.

In addition, the Household Support Fund, paid by local authorities to families in hardship, is doubled to £1 billion. The Employment Allowance paid to small businesses will increase from £4,000 to £5,000. 

Sunak warned the war in Ukraine would have an impact on rising costs. “We should be prepared for the economy and public finances to worsen potentially and significantly,” he said.

Labour said the measures did not go far enough to offset rising energy costs and called for a windfall tax on oil companies.