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Government abandons national insurance tax rise

Chancellor forced into Budget u-turn, dropping manifesto-busting plans to raise national insurance payments by self-employed.

 
Government abandons national insurance tax rise

Chancellor Philip Hammond has dropped plans to increase national insurance contributions (NICs) paid by the self-employed. 

The proposals were a key part of last week's Budget. Under the plans self-employed people would have seen their NICs rise from 9% to 10% from April 2018. This was set to rise to 11% in April 2019 as part of moves to narrow the gap in tax paid by employed and self-employed.

The move provoked uproar and accusations that Hammond (pictured) had broken a Conservative party's 2015 manifesto pledge to not raise income tax or national insurance. 

In a letter to MPs Hammond said he wanted to make sure the government stuck to the 'spirit' of its manifesto pledge. 

'In 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 measures set out in the Budget. There will be no increases in NICs rates in this parliament,' he said. 

The chancellor's retreat divided financial experts.

Graeme Robb of pension provider Prudential said it was good news for millions of self-employed people who should consider saving into a pension to beat possible tax rises later in the year.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, the wealth manager, was unimpressed. He said the u-turn on what he called a 'modest and redistributive measure' raised questions about the government's ability to drive through unpopular measures.

'If this is how it is going to be until 2020, the government might be better off triggering an early general election in pursuit of a fresh mandate and an increased majority.

'In the meantime, this U-turn will increase pressure in other areas of fiscal policy and may increase the risk of further pension tax tinkering in the Autumn budget,' he added.

George Bull, senior tax partner at auditors RSM, urged Hammond to tackle tax evasion and the shadow economy which he said cost the country £11.4 billion in lost revenue.

'If the chancellor is serious about tax fairness and maximising revenues, then he should resource HMRC to begin a new campaign against tax evasion, starting with an amnesty for tax evaders to encourage them to come forward and pay what’s due,’ he said.

12 comments so far. Why not have your say?

Pat Murphy

Mar 15, 2017 at 15:49

Same crowd who are "negotiating" Brexit route....hold onto your pads and have cycle clips ready!

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JohnR

Mar 15, 2017 at 16:11

It's an eternal mystery why tax laws are allowed to continue being so ridiculously convoluted and exploitable. Especially to those who ought to pay more yet have the means to avoid doing so.

I expect the usual political cesspit of financial privilege, access and influence all play their part in keeping things cosy at the top table.

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Robert Morfee

Mar 15, 2017 at 16:18

The big unfairness in taxation and NI contributions is that those over 65 don't pay NI contributions, no matter how wealthy they are.

The average age of members of the Conservative party is said to be 53, with 60% over 60. I see a connection.

Robert Morfee

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Mr Grumpy

Mar 15, 2017 at 16:29

Is it also too much to hope that he will backtrack over his tax on dividends which he stated was aimed at company directors fraudently claiming dividends instead of income but which also penalised pensioners relying on dividends to "just about manage".

IDIOT - sack him.

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Michael Greenland

Mar 15, 2017 at 17:53

But the death tax , a massive increase in Probate fees continues.

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Ian Holmes

Mar 15, 2017 at 18:44

Maybe I'm missing something here......

NI is National INSURANCE. Yes, I know it's just an extension of income tax but it is intended to "insure" the populace for medical insurance etc etc. One of the "etc"s that seems to have been overlooked in this debate is that the self-employed cannot be un-employed in the eyes of the benefits system. Therefore if they are out of work - tough! So why should self-employed pay the same NI as the employed when they don't qualify for the same benefits?

Enlighten me, someone, please.

(PS I'm retired so don't have any axe to grind as a self-employed person)

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Pat Murphy

Mar 15, 2017 at 19:02

Ian

Do they not access the same NHS Surgeries & Hospitals, as the employed do, when they are sick?

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Ian Holmes

Mar 15, 2017 at 19:21

Yes, of course, Pat, but they are paying NI. It's just less than the "employed". The point I am making is that it seems entirely reasonable for them to pay less NI if they receive less benefit. If the self employed are to pay the same rate as the employed, then they should be able to claim unemployment benefit when they are out of work. 'tsall! It is the missing "etc" in my previous post.

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Alex Peard

Mar 15, 2017 at 20:49

The new flat rate state retirement pension is a big increase for those self-employed as previously they could only get the basic state pension and not pay into S2P. Other than unemployment benefit the self-employed are now pretty much on par over benefits with the employed. The big difference is that the employed are paying more and getting employers NI contributions paid in as well.

It seems reasonable that the self-employed should pay less NI that those employed but with the cancellation of Class 2 self-employed 'stamps' coming up it was correct to increase Class 4 rates. The whole thing has been badly handled and should have been presented much better, many lower paid would be paying less overall and the difference for others is marginal.

The indignation in the papers is probably because many of the journalists writing the articles are freelance and very highly paid!

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Pat Murphy

Mar 15, 2017 at 20:53

Follow this link to Citizens Advice www which explains entitlement to benefits for people regardless of whether employed & self employed people: https://www.citizensadvice.org.uk/benefits/in-work-or-looking-for-work/benefits-and-tax-credits-for-people-in-work/

I think it is just holiday pay & sick pay that the self employed do not enjoy

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Alex Peard

Mar 15, 2017 at 22:11

The self-employed can claim ESA if sick. So I think it's just Jobseeker's Allowance that cannot be claimed.

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JohnR

Mar 15, 2017 at 22:23

Benefits you might be entitled to when you are self employed include:

Working Tax Credit if you are working full time

(this could mean 16, 24 or 30 hours)

Housing Benefit (HB England, Scotland, Wales, Northern Ireland)

if you live in a rented property

Council Tax Support if you have to pay council tax

Child Tax Credit and Child Benefit if you have children

Jobseeker's Allowance if you work part time (less than 16 hours) and are looking for work

Pension Credit if you are over Pension Credit age

Support with mortgage interest if you have a mortgage or home loan and are entitled to Income-based Jobseeker's Allowance, Income Support or Pension Credit.

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