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Philip Hammond scraps national insurance rise for the self-employed Philip Hammond defends scrapping national insurance rise for the self-employed
(about 2 hours later)
Philip Hammond has dropped plans to increase national insurance contributions (NICs) for the self-employed, conceding that it breached the wording of the Conservative manifesto. Philip Hammond has defended ditching the national insurance rise for the self-employed that was the centrepiece of his first budget, just a week after delivering it.
In a letter to Andrew Tyrie, the chair of the Treasury select committee, the chancellor stuck by his argument that the change would have made the tax system fairer but said he had decided “in the light of the debate of the last few days” to drop the changes. The chancellor was flanked by the prime minister in the Commons on Wednesday as he appeared to explain the government’s decision to drop the policy.
The planned rise had sparked a fierce backlash among Conservative MPs, who were concerned that the measure, which was due to be implemented in April next year, would undermine entrepreneurs and hit “white van man”. Hammond repeatedly said he stood by the rationale for the NICs rise, citing estimates from HM Revenue and Customs that the growing proportion of self-employed people in the workforce was set to cost £5bn a year in lost tax revenue.
The issue dominated exchanges at PMQs, with Theresa May insisting the U-turn did not mean she accepted that the rise in NICs went against the 2015 manifesto. “The government continues to believe that addressing this unfairness is the right approach,” he said. “However, since the budget, parliamentary colleagues and others have questioned whether the increase in class 4 contributions is compatible with the tax lock commitments made in our 2015 manifesto”.
Answering a question from the Conservative backbencher Huw Merriman, the prime minister said: “We made a commitment not to raise tax and we put our commitment into the tax lock, and the measures we put forward in the budget were consistent with those locks. Shadow chancellor John McDonnell urged the chancellor to apologise to self-employed voters for announcing – and then abandoning – the policy, which was set to raise £645m a year by 2019-20.
“But 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.” “These people are the engines of our economy. They deserve to be respected, and not attacked,” McDonnell said, describing Hammond’s move as a “blunder”.
The government would await the report from Matthew Taylor on the future of employment, May said, but would not raise NICs in this parliament. He also urged the chancellor to give more details of how he will fill the black hole created in his budget. The extra funds raised by the measure were earmarked for social care and building new schools. “We need to know now where these desperately needed funds will come from”, McDonnell said.
Jeremy Corbyn responded by saying May was presiding over “a government in a bit of chaos here”, which had produced “a budget that unravels within seven days”. Hammond had come under sustained pressure to ditch the measure from Conservative MPs, who were concerned that the measure, which was due to be implemented in April next year, would undermine entrepreneurs and hit “white van man”.
Ann-Marie Trevelyan, a backbench MP who had raised concerns about the NICs rise, welcomed the chancellor’s change of heart, saying, “my leaflets had ‘no tax rises’ on them. That’s political capital we would never get back, and we are the party of sensible taxation”.
Hammond told MPs: “This government sets great store in the faith and trust of the British people”.
The abrupt policy change was signalled by the chancellor on Wednesday morning, in a letter to Andrew Tyrie, the chairman of the Treasury select committee.
The issue dominated exchanges at PMQs, where Jeremy Corbyn accused May of presiding over “a government in a bit of chaos here”, which had produced “a budget that unravels within seven days”.
May responded to the Labour leader: “I normally stand at this dispatch box and say I won’t take any lectures from the right honourable gentleman. When it comes to lectures on chaos he’d be the first person I’d turn to.”May responded to the Labour leader: “I normally stand at this dispatch box and say I won’t take any lectures from the right honourable gentleman. When it comes to lectures on chaos he’d be the first person I’d turn to.”
The Conservative backbencher Stephen McPartland, who objected to the changes, welcomed Hammond’s climbdown. “It’s fantastic news, and shows he’s a strong chancellor, because he can admit when he’s made a mistake. I’m delighted with the announcement and I really look forward to working with him to deliver for self-employed people going forward.”The Conservative backbencher Stephen McPartland, who objected to the changes, welcomed Hammond’s climbdown. “It’s fantastic news, and shows he’s a strong chancellor, because he can admit when he’s made a mistake. I’m delighted with the announcement and I really look forward to working with him to deliver for self-employed people going forward.”
May had been forced to defend the rise at a press conference in Brussels on Thursday, and promised the government would not legislate to introduce the changes until the autumn. That would allow MPs to consider the measure alongside other planned changes, including improved maternity and paternity rights for the self-employed.May had been forced to defend the rise at a press conference in Brussels on Thursday, and promised the government would not legislate to introduce the changes until the autumn. That would allow MPs to consider the measure alongside other planned changes, including improved maternity and paternity rights for the self-employed.
Class 4 NICs were due to rise from 9% to 10% next April and 11% in 2019. Hammond said in his budget speech that would help address the fact that employees were taxed more heavily than the self-employed.Class 4 NICs were due to rise from 9% to 10% next April and 11% in 2019. Hammond said in his budget speech that would help address the fact that employees were taxed more heavily than the self-employed.
In his letter, he underlined that rationale, saying: “The measures I announced in the budget sought to reflect more fairly the differences in entitlement in the contributions made by the self-employed and addresses the challenge of sustainability of the tax base. The government continues to believe that this is the right approach.”In his letter, he underlined that rationale, saying: “The measures I announced in the budget sought to reflect more fairly the differences in entitlement in the contributions made by the self-employed and addresses the challenge of sustainability of the tax base. The government continues to believe that this is the right approach.”
The Treasury said last week the measure did breach the detail of the “tax lock” legislation introduced after the 2015 general election to implement the manifesto pledge not to increase national insurance rates. The Treasury said last week the measure complied with the detail of the “tax lock” legislation introduced after the 2015 general election to implement the manifesto pledge not to increase national insurance rates. The bill mentioned only Class 1, the main NICs rate, paid by the majority of workers.
But in his letter, Hammond conceded that the move did not comply with “the spirit” of the pledge. “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,” he said.But in his letter, Hammond conceded that the move did not comply with “the spirit” of the pledge. “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,” he said.
Speaking to journalists afterwards, the prime minister’s spokesman defended the reversal, saying May and Hammond had listened to concerns and acted quickly. The decision had been made on Wednesday morning, the spokesman said.Speaking to journalists afterwards, the prime minister’s spokesman defended the reversal, saying May and Hammond had listened to concerns and acted quickly. The decision had been made on Wednesday morning, the spokesman said.
The spokesman said: “The prime minister and the chancellor have heard what colleagues have had to say in recent days, and they have taken a decision that has been announced to parliament at the earliest opportunity.”The spokesman said: “The prime minister and the chancellor have heard what colleagues have had to say in recent days, and they have taken a decision that has been announced to parliament at the earliest opportunity.”
He denied the government was accepting that the scale of rebellion among their own backbenchers was so great that the party could not have passed legislation on the issue.He denied the government was accepting that the scale of rebellion among their own backbenchers was so great that the party could not have passed legislation on the issue.
Asked whether Hammond and May had read the 2015 Conservative manifesto, the spokesman said: “They stood on that manifesto.” He insisted May retained full confidence in her chancellor.Asked whether Hammond and May had read the 2015 Conservative manifesto, the spokesman said: “They stood on that manifesto.” He insisted May retained full confidence in her chancellor.
The measure was due to raise £645m a year by 2019-20 to help fund new schools and social care. Hammond will now face questions about how he will make his budget plans add up. In his letter he said he would announce in the autumn statement how the extra funds would be raised.The measure was due to raise £645m a year by 2019-20 to help fund new schools and social care. Hammond will now face questions about how he will make his budget plans add up. In his letter he said he would announce in the autumn statement how the extra funds would be raised.
The shadow chancellor, John McDonnell, said: “The chancellor’s authority is shredded only a week since his first budget, after being forced to U-turn under Labour pressure.”The shadow chancellor, John McDonnell, said: “The chancellor’s authority is shredded only a week since his first budget, after being forced to U-turn under Labour pressure.”
Rachel Reeves, the former shadow work and pensions secretary who sits on the Treasury select committee, accused the government of an “extraordinary U-turn after a shoddy announcement”.Rachel Reeves, the former shadow work and pensions secretary who sits on the Treasury select committee, accused the government of an “extraordinary U-turn after a shoddy announcement”.
She said Hammond “now needs to show where the £2bn shortfall is going to be made up”.She said Hammond “now needs to show where the £2bn shortfall is going to be made up”.