Chancellor Philip Hammond has performed a U-turn on plans to increase National Insurance contributions (NICs) for the self-employed, announced in last week’s Spring Budget.
In a letter to Conservative MPs explaining his decision, the chancellor said: “There will be no increases in rates in this Parliament.”
Hammond conceded the plans put forward in the Budget breached the wording of the Conservatives’ pre-election manifesto.
He wrote: “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.”
Theresa May confirmed the decision during the first Prime Minister’s Questions since the Budget.
She said: “We will bring forward further proposals, but we will not bring forward increases in NICs later in this Parliament,” she said.”
Labour leader Jeremy Corbyn commented: “It seems to me like a government in a bit of chaos here – a Budget that unravelled in seven days.”
Commenting on the chancellor’s U-turn, Julian Jessop, chief economist at the Institute of Economic Affairs, said: “The chancellor’s measure on National Insurance contributions introduced last week was ill-thought through. The principle of aligning what the self-employed and employed pay is right, but cutting NICs for the latter rather than raising those for the former would have been a much better way of achieving this.
“Better still, the chancellor should have scrapped National Insurance contributions altogether, including those paid by employers. They are a tax on jobs and wages and getting rid of the burden they place on working families would significantly help lower-income households.”
Former pensions minister Steve Webb tweeted: “Chancellor needs to find c £600m in Autumn budget to replace Class 4 NICs revenue. What are the odds on a cut in pension tax relief?”