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Budget 2017: National Insurance rate rise criticised Budget 2017: National Insurance rate rise criticised
(35 minutes later)
Rises in National Insurance Contributions (NICS) for self-employed workers have been criticised as "penalising entrepreneurs".Rises in National Insurance Contributions (NICS) for self-employed workers have been criticised as "penalising entrepreneurs".
Chancellor Philip Hammond announced in the Budget that the rate for Class 4 NICS would rise from 9% to 10% in April 2018, and to 11% in 2019.Chancellor Philip Hammond announced in the Budget that the rate for Class 4 NICS would rise from 9% to 10% in April 2018, and to 11% in 2019.
That compares to 12% currently paid by employees.That compares to 12% currently paid by employees.
"The difference in National Insurance Contributions is no longer justified," Mr Hammond said."The difference in National Insurance Contributions is no longer justified," Mr Hammond said.
Previously self-employed people paid lower NICS than employees, as they received fewer state benefits. Self-employed people have traditionally paid lower NICS than employees, as they receive fewer state benefits.
But the chancellor said the self-employed now had equal access to the new state pension. He also said that the government would consult on parental benefits, some of which self-employed people cannot claim.But the chancellor said the self-employed now had equal access to the new state pension. He also said that the government would consult on parental benefits, some of which self-employed people cannot claim.
The chancellor said all self-employed people who earned less than £16,250 would be better off.The chancellor said all self-employed people who earned less than £16,250 would be better off.
Around half of the 4.8m workers registered as self-employed earn less than £13,000, according to the think tank the Resolution Foundation. Around half of the 4.8 million workers registered as self-employed earn less than £13,000, according to the think tank the Resolution Foundation.
As a result it said most such workers - such as low-paid hairdressers - will be better off by 2019/20.As a result it said most such workers - such as low-paid hairdressers - will be better off by 2019/20.
Winners and LosersWinners and Losers
source: Resolution Foundationsource: Resolution Foundation
But the rise, which will cost those affected an average of 60p a week, was criticised by entrepreneurs.But the rise, which will cost those affected an average of 60p a week, was criticised by entrepreneurs.
"Increasing National Insurance rates for the self-employed could be a further step by the government to penalise those who are taking risks and starting a business, often giving up their regular pay cheques to take a chance at creating something great," said Lucy-Rose Walker, the chief executive of Entrepreneurial Spark. "Increasing National Insurance rates for the self-employed could be a further step by the government to penalise those who are taking risks and starting a business," said Lucy-Rose Walker, the chief executive of Entrepreneurial Spark.
Others said it was unfair that the self-employed would have to pay more, when they do not receive the same level of state benefits.
"Self-employees are subject to a lower national insurance contribution because they do not receive the same entitlements and benefits as their employed counterparts - such as holiday and sick leave," said Chas Roy-Chowdhury, head of tax at the Association of Chartered Certified Accountants.
Those paid less than £16,250 will be better off because of a planned abolition of of a different class of NICS - Class 2 - in April 2018.Those paid less than £16,250 will be better off because of a planned abolition of of a different class of NICS - Class 2 - in April 2018.
Under Class 2 NICS, self-employed workers pay 2% on qualifying earnings between £5,965 and £8060, amounting to £2.80 a week.Under Class 2 NICS, self-employed workers pay 2% on qualifying earnings between £5,965 and £8060, amounting to £2.80 a week.
The increase in the NICS rate will raise £145m a year for the Treasury by 2021-22.The increase in the NICS rate will raise £145m a year for the Treasury by 2021-22.
Matthew Taylor, head of the Royal Society of Arts, is due to produce a report on how the self-employed are taxed later this year.
He has already said that the Treasury is missing out on millions of pounds, as a result of the workers who have been designated as self-employed.