IFS welcomes plan to increase National Insurance for self-employed workers

Financial experts have backed government plans to raise National Insurance contributions for self-employed workers.

Independent researchers at the Institute for Fiscal Studies (IFS) said the controversial move - which would see an average of £240 a year added to the bills of the self-employed - would help fix a "complex" and "unfair" system.

The IFS gives an assessment of the government's tax and spending plans after each budget announcement, having analysed the figures.

The proposal to increase contributions sparked anger amongst some backbench MPs after it was unveiled by Chancellor Philip Hammond on Wednesday, with some accusing the government of breaking a key manifesto pledge from the 2015 general election not to increase income tax or National Insurance.

Philip Hammond (right) has been criticised for breaking a manifesto pledge of David Cameron. Credit: PA

It will push contributions up two per cent over the next two years, raising some £2 billion for the Treasury.

IFS director Paul Johnson said David Cameron's 2015 General Election pledge had been "foolish".

"A tax system which charges thousands of pounds more in tax for employees doing the same job as someone else needs reform," he said.

"It distorts decisions, creates complexity and is unfair. The incentives for companies to claim that people who work for them are self-employed rather than employees are huge."

Mr Johnson added that any self-employed worker earning under £15,570 a year would be left better off by the changes, while the maximum loss of £589 a year would only affect those with profits of more than £45,000.

"The tax advantage to being self employed will still run into the thousands of pounds," he said.

The IFS also said workers face "dreadful" earnings growth with wages on course to be no higher by 2020 than they were nearly a decade ago.

Speaking on BBC Radio 4's The World at One, Mr Johnson said: "If you look out to 2020 it looks like earnings will be no higher than they were in 2008."