Exactly a week after he announced a rise in National Insurance Contributions (NICs) for the self-employed in his Spring Budget, Chancellor Philip Hammond has made a dramatic U-turn and said the plan will be scrapped.
Mr Hammond had announced that Class 4 NICs, which are paid by the self-employed, would rise to 11 per cent by 2019 to bring them into line with the amount paid by employed workers.
However, he faced such a barrage of criticism, not just from opposition MPs, and business lobby groups but also from members of his own party, that he wrote to Conservative MPs saying “there will be no increases in NIC rates in this Parliament’.
Tory MPs were furious that, in announcing the rise, the Chancellor was breaking a pledge made by David Cameron in the Conservative manifesto that no taxes would be raised if the Tories were elected.
Therefore, in his letter, Mr Hammond said that he and Prime Minister Theresa May, who had originally defended the move, would not only uphold the letter but also the spirit of commitments made in the manifesto.
The original announcement would have increased Class 4 NICs from 9 per cent to 10 per cent in April 2018 and to 11 per cent in 2019. It is estimated that the U-turn could see the Treasury losing out in NIC payments to the tune of £2bn.
However, the Chancellor says he will use the Autumn Budget to set out further measures to “fund in full” the lost cash. This could be difficult as, between them, income tax, NICs and VAT raise 65 per cent of the Government’s tax income, so if the letter and spirit of the Tory manifesto are to be upheld, there will be little room for him to manoeuvre later in the year.