The government has backed down over its controversial plans to introduce a tax increase for self-employed people earning above a certain threshold.
Announced in chancellor Philip Hammond’s Budget last week, the measure would have seen Class 4 National Insurance contributions for self-employed workers rise from nine per cent to ten per cent from April 2017, with a further increase to 11 per cent in 2019.
However, Mr Hammond has now deferred to what he described as a “clear view among colleagues and a significant section of the public” that this move would be in violation of a pledge the Conservative Party made in its 2015 election manifesto that National Insurance rates would not increase.
In a letter confirming the change of policy to Andrew Tyrie, the chair of the Treasury select committee, Mr Hammond continued to defend the rationale behind his proposal, saying it was necessary to make the tax system more fairly reflective of the modern world of work.
He pointed out that the gap between benefits available to the self-employed and those in traditional payroll-based jobs has narrowed significantly in recent years, pointing to the introduction of the new State Pension in April last year as a measure that will give self-employed people an additional £1,800 for each year of retirement.
As such, he suggested that the scale of difference in the National Insurance contributions paid by the two groups is no longer justifiable. However, in light of the recent backlash, the minister pledged that no increase to National Insurance rates will be brought in during the current parliament.
Mr Hammond said: “It is very important both to me and the prime minister that we are compliant not just with the letter, but also the spirit, of the commitments that were made.”