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  1. ITV Report

Self-employed National Insurance rise: The for and against

NI contributions for the self-employed will increase in April 2018. Credit: PA

The government has announced a rise in National Insurance contributions (NICs) for the self-employed.

This is despite the Conservatives manifesto pledge for the 2015 general election not to raise income tax or NICs for five years.

Here is a look at the plans and some of the arguments levied for and against them.

  • What is happening?

From April 2018, the main rate of Class 4 National Insurance Contributions apply to the self-employed will increase from 9% to 10% and to 11% in April 2019.

Class 2 NICs - a flat-rate charge on the self-employed - will also be abolished from April 2018.

The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018.

£240
a year is set to be added to the NI payments of some 1.6 million self-employed people
  • Why is it happening?

The Government says the abolition of Class 2 NICs announced in 2016 and due to take effect in 2018 would increase the differential between the NI rate paid by employees and those paid by the self-employed.

It argues that raising the Class 4 rate of NICs reflects more equal pension entitlements, with the introduction of a new flat-rate state pension last year.

The Chancellor insists the plans announced in the Budget are 'fair'. Credit: PA

Speaking to ITV News, Chancellor Philip Hammond defended the plans arguing that it makes the system more "fair".

"We have to have a tax system that is fair, and it's right that we ask people to contribute appropriately for the benefits that they're receiving from the state - access to the National Health Service, access to state pensions - available now on the same basis as the employed."

"And they have to be prepared to pay a little more," he added.

  • How much will it raise?
£2bn
will be raised for the Treasury over the next two years as a result of the changes

The Government also said the increase will raise £145m for public services by 2012-22.

The National Insurance changes will raise more revenue for the Treasury. Credit: PA
  • What are some of the arguments against the plans?

The Government insists that overall the average loss to the self-employed will amount to only 60p a week and those earning less than £16,250 will still see a reduction in their bills.

But some critics have condemned the move and called for a "re-think".

It has been argued that self-employed people are not on an equal footing with employees. For example, employees get the benefit of an employer paying into their workplace pension, through automatic enrolment.

There are also disparities with parental benefits between employees and the self-employed.

The Federation of Small Businesses have said it amounts to a "£1 billion tax hike on those who set themselves up in business".

"Future growth of the UK’s 4.8 million-strong self-employed population is now at risk," chairman Mike Cherry said.

The National Insurance changes have divided opinion. Credit: P
  • Arguments in support of the move

The Institute for Fiscal Studies have said the NI changes could help fix a "complex" and "unfair" tax system.

IFS director Paul Johnson said 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.

David Robbins, a senior consultant at risk management firm Willis Towers Watson, said: "Previously, self-employed people paid a lower rate of NICs than employees but only accrued rights to the basic state pension and not the additional state pension.

"From April 2016, they have continued to pay less NICs while building up exactly the same pension entitlements. There were always warnings that this would not be sustainable."