Plans to increase National Insurance levels for self-employed people – announced in the Budget last week – have been dropped.

Chancellor Philip Hammond has said the government will not proceed with the increases which were criticised for breaking a 2015 manifesto pledge.

The plans set out in the Spring Budget were to lower national insurance contributions from self-employed workers which is forecast to cost public finances £5 billion this year alone.

To combat this, the main rate of Class 4 national insurance contributions for those who are self-employed was set to increase by 1 per cent to 10 per cent in April 2018 and 11 per cent in April 2019, raising £145 million a year by 2021-22 at an average cost of 60p a week to those affected.

This would ultimately, according to the Chancellor, make things fairer to those in employment and bring the self-employed in line.

Last week, Prime Minister Theresa May attempted to provide clarity over the rise by delaying the vote to pass the increase until the August Budget, sparking criticism from the Labour party.

The prime minister insisted the rises were necessary and fair, but said Chancellor Philip Hammond would listen to concerns.

But the plans to increase national insurance contributions for the self-employed is now set to be scrapped, a shocking U-turn from the Chancellor’s budget plans.

In a letter to Tory MPs, Hammond says, ‘There will be no increases in… rates in this Parliament.’

Hammond will explain the U-turn in a Commons statement later.

Reaction

Barnaby Lashbrooke, founder of UK virtual assistant platform Time Etc, comments, ‘Today, common sense has prevailed. Our millions of self-employed workers, who support British businesses and enable them to thrive, should not be taxed as employed.

‘They don’t get the luxury of employer pension contributions or paid annual leave, and must financially support themselves through quiet periods, sickness and parental leave. If anything, more support is needed to protect the self-employed.

‘If he had pushed on and increased class 4 NICs as outlined in the Budget, the Chancellor would have made himself intensely unpopular with almost 5 million people, and reneged on Tory manifesto promises.’

Rob Lankey, chief executive of the National Association of Commercial Finance Brokers (NACFB), says, ‘Mr Hammond’s swift about-turn on the subject of NICs will rally the self-employed who might have felt unfairly targeted in last week’s Budget.

‘Working attitudes have shifted over the last couple of years to allow for increasingly flexible employment types – the upturn in the number of self-employed workers in the economy is just one of the benefits of this.

‘Last week’s decision to increase national insurance contributions for this group of workers was a low-blow to businesses that rely on these innovative ways of working – such as companies within the gig economy – as well as the likes of buy-to-let property investors.

‘This retreat by the government will undoubtedly cheer businesses of all sizes, but particularly small companies that often call upon non-permanent staff to operate effectively.’

George Bull, senior tax partner at RSM adds, ‘Tax evasion is the elephant in the room of the UK tax system. Since the Chancellor’s Budget, there have been many shrieks and much running around as the little mouse of the Class 4 NIC changes caused havoc.

‘This morning, the Chancellor swept the little mouse out of the house by formally abandoning the NIC rises in this Parliament. What should he do now to raise more taxes?

‘We urge the Chancellor to turn his steady gaze on the elephant of tax evasion. Tax evasion and the shadow economy cost the UK Exchequer £11.4 billion a year, according to HM Treasury.

‘If the Chancellor is serious about tax fairness and maximising revenues, then he should resource HMRC to begin a new campaign against tax evasion, starting with an amnesty for tax evaders to encourage them to come forward and pay what’s due.’