Chancellor scraps plans to increase National Insurance Contributions payable by the self-employed.
It bore the brunt of Budget criticism from commentators, the public and even Tory party backbenchers, and Philip Hammond has now bowed to the pressure and scrapped his plans to increase NIC for the self-employed. Just one week to the day since Mr Hammond announced the hike in payments, he has performed a dramatic U-turn and confirmed that the plans will now not be implemented. Shadow Chancellor John McDonnell has called the about-face “shocking and humiliating” and believes that self-employed people have been put “through the mangle” this week: as a result of the plans 1.6 million people would have been paying, on average, £240 more per year. The U-turn comes with no apology from the Chancellor.
His own party complained heavily at the impact the changes would have on small businesses, described by Mr Hammond himself as “the entrepreneurs and innovators who are the lifeblood of our economy”. It was argued that the changes would stifle enterprise and risk taking. The Chancellor defended the increases by drawing attention to the fact that self-employed people now have much the same pension and benefit rights as those in ‘full’ employment, so the disparity in National Insurance rates can no longer be justified; the changed system would be deemed fairer.
However, commentators and critics have challenged this, stating that the difference in NI rates is justified because self-employed people are not entitled to things like paid holiday and sickness leave. They are simply not treated the same way as outright ’employees’. But many self-employed people work in large LLPs; within the professional, legal and financial services sectors, where to some extent they do have the advantage of these additional benefits.
Criticism stemmed, mainly, from the content of the Conservatives’ manifesto back in 2015, in which the Government promised a ‘five year tax lock’, including NIC.
Does this perhaps show a weakness within Number 10 and 11? This is a dramatic U-turn, which appears to have resulted from backbench mumblings and the slightest nudge in the back of the Chancellor. Many have questioned the credibility of Mr Hammond, claiming his “political antennae have gone wonky”.
In the House of Commons today, Mr Hammond has said “we have listened to our colleagues, we have listened to the voices of public opinion and in my view that is how parliament should work.” The loss of the proposed increase in revenue will be dealt with in the Autumn statement as Mr Hammond said that the extra £2bn for adult social care, also introduced in last week’s Budget, “would have to come from somewhere”. It remains to be seen whether the Chancellor will now look to businesses, rather than the self-employed, to fill this gap.