Chancellor’s U-turn on NICs for self-employed

15 March 2017

In what has been described as “a dramatic U-turn”, plans to increase National Insurance rates for self-employed people - announced in the Budget last week – were dropped today (March 15).

Chancellor Philip Hammond said the government will not proceed with the increases which would have increased costs for thousands of self-employed subpostmasters, and were also criticised for breaking a 2015 manifesto pledge.

He told MPs in a Commons statement: "There will be no increases in National Insurance rates in this Parliament."

Labour's Jeremy Corbyn said the U-turn showed a government "in chaos".

Mr Hammond had faced a backlash by Conservative backbenchers last week, who accused him of breaking a general election manifesto commitment not to put up National Insurance, income tax or VAT.

Explaining his change of heart to MPs, the chancellor said: "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."

Mr Hammond's Budget announcement would have increased Class 4 NICs from 9% to 10% in April 2018, and to 11% in 2019, to bring it closer to the 12% currently paid by employees.

He would use the Autumn Budget to set out further measures to "fund in full" the £2bn lost from NICs, he said. Income tax, National Insurance contributions and VAT raise 65% of the government's tax income.

Tom McPhail, Hargreaves Lansdown's head of retirement policy, argued the U-turn would increase pressure in other areas of fiscal policy - and "may increase the risk of further pension tax tinkering in the Autumn Budget".

Chris Bryce, CEO of the self-employed body IPSE, welcomed the U-turn, saying "hard working people will sleep easier tonight" - while Stephen Herring, the Institute of Directors' head of taxation, said the National Insurance "saga can only be described as chaotic".