Budget National Insurance rises ‘make system fairer’

Media captionThe chancellor announcing the rise in National Insurance for self-employed

Philip Hammond has rebuffed calls for a rethink on National Insurance increases for millions of self-employed workers announced in the Budget.

The measure, which breaks a 2015 manifesto pledge on NI contributions, would result in 1.6 million people paying ?240 on average more every year.

The chancellor told the BBC that lower earning self-employed people would be better off, and the new system fairer.

Critical Tories said it did little to encourage enterprise and risk-taking.

Media captionChief Secretary to the Treasury David Gauke: “We are moving in the right direction”

The BBC’s political editor Laura Kuenssberg said the extent of the political fallout was not clear yet but Downing Street would be “disappointed” by some of Thursday’s newspaper reaction, with The Sun’s front page headlined “Spite van man”.

Mr Hammond’s number two at the Treasury, David Gauke, told BBC Newsnight on Wednesday: “I think people understand the fairness point.

“At a time when – unlike what has happened in the past – essentially the benefits that the self-employed receive for their contributions are largely the same as employed people do, it is wrong that employed people pay a lot more in National Insurance contributions.”

The Conservatives’ last general election manifesto explicitly ruled out rises in National Insurance, VAT and income tax during the lifetime of the current Parliament.

During the campaign, the then-Prime Minister David Cameron continually repeated the commitment in public and contrasted it with the “jobs tax” which he said people could expect if they elected a Labour government.

Media captionWhat David Cameron said about National Insurance during 2015 election

In the wake of Philip Hammond’s Budget announcement, ministers argued that legislation enshrining the manifesto commitment in law – approved by Parliament in 2015 – only referred to national insurance contributions paid directly by employers and their employees.

Mr Hammond told BBC Breakfast that “no-one had objected” when this legislation made clear the “no increases” pledge did not include NI rates for the self-employed.

Wednesday’s changes would see the 9% rate of Class 4 National Insurance contributions currently paid by those self-employed people earning between ?8,060 and ?43,000 go up to 10% in April 2018 and to 11% in April 2019.

Justifying the move – which is set to raise ?145m – the chancellor said there had been a “dramatic increase” in the number of self-employed workers and the current difference in NI rates paid by the self-employed and employees “undermines” the fairness of the tax system.

While differing NI rates had traditionally reflected a disparity in pension and benefit entitlement between self-employed people and those in employment, he said these had now been “very substantially reduced”, and there would soon be a consultation on addressing disparities in relation to parental benefits.

On its own, the change announced in the Budget will leave 2.5 million people facing an average annual increase of ?240.

But a separate category of NI payments, Class 2, are already due to be abolished from 2018, and Mr Hammond said that taken together the two changes meant payments for a self-employed person would be on average 60p a week higher.

The Treasury later said that no-one earning less than ?16,250 would be worse off, taking into account future rises in the personal allowance,

However, this has not stopped Conservative backbenchers – who Mr Hammond addressed on Wednesday evening – from expressing concerns about the impact of the tax rise on the self-employed and the message it sends out.

Speaking in the House of Commons, Tom Tugendhat said while the figures were small, the thrust of the policy was “slightly concerning”.

“They speak to a tone that is not entirely helpful and I would urge a rethink,” he said. “The self-employed, the start-up, those taking risks, are the ones we should be encouraging – through support and particularly through taxation.”

John Redwood warned against “taxing work, growth and enterprise and success” while Jacob Rees-Mogg said the UK’s flexible labour market had helped support levels of employment after the 2008 recession.

“I see the logic for why government wants to do this – unfairness – but the question is not so much in terms of revenue but whether having a structure that encourages self-employment is overall beneficial and whether that is a price worth paying.”

‘Broken promises’

Labour accused the government of “breaking their promises” and “clobbering” the self-employed while the Lib Dems and UKIP also criticised the move.

There has also been a backlash from business with the Federation of Small Businesses saying it “undermined” the government’s ambition for the UK to become the best place to start and grow a business.

In his first Budget, Mr Hammond also announced a ?2bn cash injection for social care services in England, and ?345m in help for firms hit by business rate rises across England.

Mr Hammond acknowledged the care system was under pressure with an ageing population, and said the new ?2bn for services in England over the next three years would allow councils to “act now to commission new care packages”.

He also said the government would set out the options for long-term funding of the social care system later in the year – although these would not include a “death tax”.

Other key measures in the Budget included:

  • 90% of pubs will be given a ?1,000 business rates discount
  • ?100m for new triages in English hospitals and an extra ?325m for NHS reform programmes
  • Reduction in tax-free dividend allowance for investors from ?5,000 to ?2,000.
  • Funding of ?5m to support people returning to work after a career break
  • ?270m for maintenance of existing schools
  • Extending free transport to all free school meals pupils who attend selective schools
  • No change to previously-planned upratings of duties on alcohol and tobacco
  • Additional funding of ?350m for the Scottish government, ?200m for the Welsh government and almost ?120m for the Northern Ireland Executive

Budget National Insurance rises ‘make system fairer’}

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