Chancellor scraps National Insurance rise in Budget U-turn

Hammond scraps National Insurance rise Credit: PA

Philip Hammond has scrapped his planned Budget hike in National Insurance Contributions (NICs) for the self-employed.

In a letter to Conservative MPs, the Chancellor said he would not proceed with the planned increase in Class 4 NICs which he announced just a week ago.

"There will be no increases in NICs rates in this Parliament," he said.

The proposed rise would have cost an average self-employed person £240.

Mr Hammond had faced a furious backlash by Conservative backbenchers, who accused him of breaking a general election manifesto commitment not to put up NICs, income tax or VAT, while hitting traditional Tory supporters.

In his letter, the Chancellor said: "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. We will continue with the abolition of Class 2 NICs from April 2018.

"It is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also the spirit of the commitments that were made.

He added that the cost of the changes "will be funded by measures to be announced in the Autumn Budget".

The Chancellor had argued that the increase in Class 4 NICs had been necessary to address the growing unfairness in the National Insurance system in the treatment of employees and the self-employed.

A consultation is planned for the summer to look into different entitlements enjoyed by the employed and self-employed.

At PMQs Theresa May said the Tories 'made a commitment not to raise tax'. Credit: PA

At Prime Minister's Questions (PMQs) Theresa May faced uproar from opposition MPs when she said: "We made a commitment not to raise tax, and we put our commitment into the tax law.

"The measures we put forward in the Budget last week were consistent with those locks.

"As a number of my parliamentary colleagues have been pointing out in recent days, the trend towards greater self-employment does create a structural issue in the tax base on which we will have to act. We want to ensure we maintain fairness in the tax system."

Ms May said she would await the publication of the Taylor Report on the future of employment and consider the Government's overall approach to employment status, rights and entitlements before deciding what to do next.

"We will bring forward further proposals but we will not bring forward increases in NICs later in this Parliament", Ms May added.

Lib Dem leader Tim Farron said the Tories had 'clearly panicked'. Credit: PA

Liberal Democrat leader Tim Farron said Mr Hammond had simply bowed to the inevitable.

"The Conservatives have bodged every Budget since the election and have lost the right to call themselves the party of business," he said.

"They are simply not thinking about the 'just about managing' who are struggling with the Brexit squeeze.They are lumbering from one U-turn to another and are clearly panicking."

TUC general secretary Frances O'Grady said: "This is a real opportunity for the Chancellor to look at how self-employed workers can be treated more fairly.

"The Government should start by looking at the tax advantages which encourage bad employers to push people into bogus self-employment.

"People who are self-employed should be able to access basic protections like any other worker. That means paid parental leave and pay when you fall sick."