Hammond forced into U-turn on NICs

Chancellor Philip Hammond has backtracked on his Budget commitment to raise the National Insurance contributions of the UK’s self-employed, while preserving a Conservative Party manifesto pledge.

Budget red despatch case
In an open letter to the Treasury Select Committee, Mr Hammond 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 [not to raise income tax, national insurance or VAT].“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.”

NICs "unfair"

Last week, in his spring Budget, Mr Hammond announced a 2p increase in Class 4 NICs, saying that the disparity between employed and self-employed workers in the tax cost the public purse over £5 billion a year and was “unfair”.He said the rise would take effect from April 2018, when Class 2 NICs are abolished and the main rate of Class 4 NICs for the self-employed will increase by 1 per cent to 10 cent, with a further 1 per cent increase in April 2019. Only the abolition of Class 2 NICs remains unchanged from this statement.

Timescale of the NICS u-turn

Today’s announcement was preceded by confusion. Within 24 hours, Prime Minister Theresa May had already moved to delay the NICs increase by shifting a vote on the measure to September.A week later, the Chancellor’s NICs rise has been reversed. IPSE, the Association of Independent Professionals and the Self Employed, welcomed the government’s move.

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Positive reaction to NICs news

Chris Bryce, IPSE CEO, said, “IPSE is delighted that the Chancellor, following IPSE’s representations, decided to rethink his plans to raise NICs on the self-employed. Two-and-a-half million hard-working people will sleep easier tonight.“The decision to remain true to the Conservative manifesto pledge is most welcome, and we are delighted they have considered the detrimental effect imposing a tax rise on the self-employed population would have.“The self-employed add a significant deal to the UK economy, and the reversal of these changes allows them to continue doing exactly that.

“After the Budget announcement, people working for themselves up and down the country made their voices heard, and government did the right thing in listening.“Tax for the self-employed is an incredibly complex issue, and any policy needs to be carefully considered. IPSE looks forward to working with the government to discuss how to make taxation of this group fairer while protecting treasury receipts.”

Added flexibility a benefit to economy and businesses

Rob Lankey, chief executive of the National Association of Commercial Finance Brokers (NACFB), said he believed small businesses would be cheered by the news.“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.”

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