The National Insurance rise for self-employed people set out in the Budget last week will not go ahead, the chancellor says.
In a letter to MPs, Philip Hammond said “there will be no increase in… rates in this parliament”.
The letter reads:
“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.
“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 had faced a backlash from MPs across the aisle, who accused him of reneging on a Tory general election manifesto promise not to put up National Insurance, income tax, or VAT.
Hammond had tried to claim that because George Osborne had cut National Insurance for the self-employed in a previous budget, by scrapping Class 2 NI contributions from 2018, that his plans would not be an overall NI increase. However, backbench Tory MPs and the right-wing press disagreed, and have called loudly for the plan to be reversed.
Labour leader Jeremy Corbyn called the government U-turn “chaos” and accused the government of “playing fast and loose with our economy”.
Liberal Democrat leader Tim Farron, used the policy position reversal to question whether the chancellor would “now U-turn on another broken election commitment to keep us in the single market” after Brexit.
The reverse in policy has been widely welcomed across the business sphere, but some have raised concern that the proposal shows that the government is out of touch with the working people of the country, which is cause for concern as the country prepares to leave the European Union.
DeVere Group CEO, Nigel Green, commented
“This is a stunning u-turn by the Chancellor, just a week since his Budget. Whilst we welcome this climbdown, it does show just how out of touch this government is with Britain’s hardworking, already-squeezed and over-taxed entrepreneurs – the lifeblood of the UK economy.”
“Hiking taxes on the self-employed would have only served to punish ambition and undermine aspiration to get on in life.
“This grinding u-turn is now a golden opportunity for this government to go one step further and better incentivize those self-reliant individuals who take on the responsibility, risk and burden of setting up companies and creating jobs and wealth. This is perhaps more important than ever as Britain prepares to launch divorce proceedings from the EU.
“Surely, if the UK is to thrive outside the EU, it should be aiming to keep and attract more entrepreneurial self-starters.”
Nick Harrison, Head of Products at First Direct, said:
“We’re pleased to see the plans to increase NI for the self-employed have been removed from the Chancellor’s Plans. The rise of the gig economy in recent years has seen the self-employed playing an increasingly important role in the British economy, and the fewer barriers in place to hinder innovation and entrepreneurship the better the outlook for the UK.”
Hammond is due to make a statement on the subject to MPs at about 13:45 GMT.