Philip Hammond has torn up his plans to raise National Insurance on self-employed people, in the biggest ever and most humiliating Budget U-turn for a generation.
In a letter to Tory MPs, the chancellor said he would not proceed with the increase in Class 4 NIC which he promised last week, “in light of the debate of the last few days.”
His wording is code for the massive outcry that his vow to raise Class 4 from 9p to 11p caused, because it follows his party’s manifesto pledge not to raise National Insurance.
decision to remain true to the Conservative manifesto pledge is most
welcome," said freelancing body IPSE.
"The self-employed add a significant deal to the UK economy and the reversal of these changes allows them to continue doing exactly that."
But the NI hike was supported by the Resolution Foundation (RF) and the Institute for Fiscal Studies (IFS), as well as the Institute of Directors, which bemoaned the U-turn yesterday.
Supporters of sole traders are relieved, however, especially
as contrary to the RF’s claims, the increase would have
penalised lower-earning business soloists, on £10,000, and even those on £20,000. On average, it would have added £240 onto sole traders' bills.
“The chancellor’s decision to perform a U-turn is a step in the right direction”, confirmed Qdos, a tax specialist for people who work for themselves.
“Let’s remember, for the self-employed there is no guaranteed sick, holiday or paternity pay, or employer pension contribution… [and they] work without the security of employees.”
The Freelancer and Contractor Services Association agreed, saying the overlooking of freelancers having fewer rights and protections (including 57% less maternity allowance than employees) was “naive.”
“[We are] pleased to hear
that [the chancellor] has used some common sense,” added FCSA’s Julia Kermode. “[His]
argument that the increase would level the playing field between employees and
the self-employed was flawed.”
However, it seems that it was the common sense of a journalist that first alerted the chancellor.
Alex Salmond, Scotland's former first minister asked Mr Hammond: "Who first realised that the government were in flagrant breach of their manifesto commitment?"
A seemingly caught-off-guard chancellor replied: "I think it was actually Laura Kuenssberg of the BBC, shortly after I said it in the Budget speech."
The admission, and his actions, notably announcing a policy without consultation and having it overuled by the prime minister within seven days, has raised questions about Mr Hammond's position as chancellor.
“[This cancellation] is as welcome to business owners as it is embarrassing to the prime minister,” said the website’s founder Xenios Thrasyvoulou.
“This is simply a case of the chancellor getting it wrong and, while the fact he has listened to his colleagues and the thousands of small business owners up and down the country should be commended, how it even reached this far is a worrying indication.”
In his letter, Mr Hammond declines to apologise for wanting the April 2019 NIC hike, as he did repeatedly this week, insisting it would have made the tax system “fairer.”
However, 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 wrote in his letter, referring to the Tories’ 2015 manifesto.
The former self-employed businessman added: “In the 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 measure set out in the Budget.”
The chancellor’s U-turn does not affect the abolition of Class 2 NICs (which will still go ahead for the self-employed), nor does it seem to affect the Taylor Review, due to report in June.
Seeming to address that review team, Qdos reminded: “Freelancers and contractors don’t benefit from the same kind of privileges as employees often do, so to tax them at a similar rate to employees seems short-sighted and unfair.”
Chris Bryce, chief executive of the Association of Indpendent Professionals and the Self-Employed (IPSE) said: "Two-and-a-half million hard working people will sleep easier tonight.
"After the Budget announcement, people working for themselves up and down the country made their voices heard and Government did the right thing in listening."