Chancellor Philip Hammond has announced that the government will not now proceed with the increase in Class 4 national insurance contributions (NICs) proposed in his Spring Budget last week.
The change would have increased Class 4 NICs from 9% to 10% in April 2018, and to 11% in 2019 – with the stated aim of bringing the contributions paid by the self-employed closer to the 12% currently paid by employees.
However, the Budget proposal prompted an angry reaction – including from some Conservative MPs – as it appeared to contradict the 2015 Conservative election manifesto promise not to increase certain taxes, including national insurance.
In a letter explaining the U-turn, the Chancellor 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.’
The majority of business groups have welcomed the U-turn. Adam Marshall, Director General of the British Chambers of Commerce (BCC), commented: ‘The NICs rise, together with the cut to dividend tax-free allowances, was not viewed favourably by entrepreneurs – so this move and pause for thought are welcome.’
The Federation of Small Businesses (FSB), which lobbied against the NICs rise, gave a broadly positive response. Mike Cherry, its National Chairman, stated: ‘We are delighted for our members and all the nation’s self-employed that the Chancellor has recognised the strong opposition to this measure, admitting it was against the spirit of the manifesto on which his party stood, and has now decided to scrap it for the duration of this parliament.’
Responding to the news, the Trades Union Congress (TUC) called for the Chancellor to now ‘look at how self-employed workers can be treated more fairly’.
Frances O’Grady, General Secretary of the TUC, said: ‘People who are self-employed should be able to access basic protections like any other worker. That means paid parental leave and pay when you fall sick.’