There had been reported outrage and planned rebellions from his own back benches following the announcement in Mr. Hammond’s first budget as Chancellor of the Exchequer, especially as it directly contradicted the Conservative manifesto pledge to not raise National Insurance for five years made by David Cameron in 2015.
Speaking during an upbeat budget announcement last week, Philip Hammond attempted to vindicate his controversial move by commenting that lower contributions by the self-employed “undermines the fairness of our tax system. The employed and self-employed use our public services in the same way — but they do not pay for them in the same way”.
Despite the risky nature of the plans, Hammond also planned to close tax benefits that are “no longer justified” by increasing the National Insurance contributions (NICs) for self-employed people earning more than £16,250 a year. Although the changes were set to be fairly minimal, the plans infuriated many of his colleagues and self-employed “white van men”. Attempting to justify his announcement, the Chancellor said an employee earning £32,000 a year currently faces an NI bill of £6,170 along with their employer, while the bill for a self-employed person earning the same salary would be £2,300. This was without taking into consideration that self-employed people have no access to the sick pay or company benefits enjoyed by those in full-time employment.
The nitty gritty of the plans set out were to raise class 4 NICs for the self-employed from 9% to 10% in April 2018 – and then to 11% in April 2019 – on income up to the higher rate threshold of £45,000. The new rates were still lower than for employees who pay NI at 12% on the same income levels, while both groups would continue to pay at 2% on income above the higher rate threshold.
Many established media outlets that are considered sympathetic to the Government—including the Daily Mail, the Telegraph and the Sun—published unfavourable front pages following the announcement, indicating that the planned changes were not well received by the media and the public at large. Following the frosty reception in the aftermath of the Budget announcement, there were reported rebellions from back bench Tory MPs who considered the changes unacceptable. As if the Chancellor wasn’t facing enough pressure from the public, there then came a series of extraordinary leaks reportedly coming from the Prime Minister’s office and blame flying in all directions.
In an article in the Telegraph, a source apparently told a journalist in reference to the potential manifesto clash: “On something as significant as that, you need to say ‘it could be seen that this is a breach of our manifesto commitment but it’s not because of X, Y, Z. You need to flag it more clearly. There is a very clear view that the Treasury should have politically flagged the risk”. If that wasn’t condemnation enough, videos soon emerged online of former Prime Minister David Cameron openly criticising the Chancellor’s decision on camera, saying: “Breaking our manifesto promise is a stupid idea”.
And so, following on from a week of intense pressure from all sides, the Chancellor announced his intention to drop the plans altogether. In a letter to Tory MPs, reported on the BBC website, he said: “There will be no increases in… rates in this Parliament.” The Chancellor also said: “It is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also the spirit of the commitments that were made. In the light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measure set out in the Budget”.
The news will be met with relief from self-employed people as well as the wider economy as new figures released today showed unemployment figures at their lowest since the summer of 1975.
With the economy performing strongly and inward investment high, there are many that consider the Chancellor to be doing a very good job so news that he has reversed these plans should be seen as positive and signs of a Treasury that are willing to listen and respond accordingly.
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