The increase in national insurance will be reversed from November 6, chancellor Kwasi Kwarteng has confirmed.
The 1.25 percentage point increase in the tax – which only came into force in April – was announced by former chancellor Rishi Sunak to help fund health and social care.
But speaking ahead of Friday’s so-called mini-Budget, Kwarteng said: “Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.
“Cutting tax is crucial to this – and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn.”
Liz Truss, the prime minister, had made clear during the Tory leadership race that she intended to scrap the increase.
But the tax cut will benefit the poorest by just 63p a month, according to the Institute for Fiscal Studies.
By contrast, the respected think-tank said the move would be worth around £150 a month to higher earners.
The IFS analysis found that the richest tenth of households, who earn an average of £108,000, will save £1,800 a year.
However, the poorest 10 per cent of households, who earn £12,000 a year on average, will save just £7.66 a year.
It comes as a huge poll found most voters want to see taxes go up so the government can increase spending on public services.
The British Social Attitudes survey found that 52 per cent believe people should give more of their pay packet to the Treasury in order to fund schools, the health service and welfare.
Truss has insisted that handing wealthy voters tax breaks is “fair” and said she is willing to make “unpopular” decisions in order to grow the economy.