Philip Hammond defends scrapping national insurance rise for the self-employed

Chancellor performs U-turn on much-criticised budget tax grab, accepting that it breached wording of Tory manifesto

Philip Hammond ditched plans to increase national insurance contributions for the self-employed yesterday, in a humiliating U-turn just a week after the measure formed the centrepiece of his first budget.

The chancellor signalled the abrupt change of heart in a letter to Conservative MP Andrew Tyrie, the chair of the treasury select committee, following a revolt by backbench MPs that Hammond had proved unable to quell.

Both the Treasury and No 10 insisted the decision, which leaves a £2bn hole in the chancellor’s budget plans over the next five years, had been taken jointly by May and Hammond.

But at Westminster on Wednesday night some MPs insisted May had ordered her chancellor to drop the plans, fearing that breaking the party’s manifesto pledge to make “no increases in VAT, national insurance contributions or income tax”, would do too much damage to the Conservatives’ reputation.

Class 4 NICs, the rate paid by self-employed people, were due to rise from 9% to 10% next April and 11% in 2019, to narrow the gap with employees, and prevent the tax base being eroded as self-employment becomes more widespread.

John McDonnell calls government chaotic after NICs U-turn

Hammond continued to defend the policy, which he said would have helped to address the fact that the self-employed pay less tax than employees, despite receiving many of the same benefits, including, from April next year, the same access to the state pension.

But he conceded the NICs rise breached the “wider understanding of the spirit,” of the Tory manifesto.

“The government continues to believe that addressing this unfairness is the right approach,” he said. “However, since the budget, parliamentary colleagues and others have questioned whether the increase in class 4 contributions is compatible with the tax lock commitments made in our 2015 manifesto,” he said.

In the Commons shadow chancellor John McDonnell urged him to apologise to the self-employed.

“This is chaos. It is shocking and humiliating that the chancellor has been forced to come here to reverse a key budget decision announced less than a week ago. If the chancellor had spent less time writing stale jokes for his speech and the prime minister less time guffawing like a feeding seal on the Treasury bench, we would not have been landed in this mess.”

He added: “Nobody should be too arrogant to use the word ‘sorry’ when they blunder so disastrously.”

A cross-section of Conservative MPs, from the centrist Nicky Morgan to arch-Brexiteer Jacob Rees Mogg, stood up to offer their support for the chancellor – but some loyalists questioned why they had spent the week defending the controversial policy, only to see it dropped.

Desmond Swayne, Conservative MP for New Forest West, asked the Speaker, John Bercow, if he could raise a point of order, saying, “as a slavish supporter of the government, I am in some difficulty. My article for the Forest Journal, robustly supporting the chancellor’s earlier policy, is already with the printer … Having been persuaded of the correctness of the course that the chancellor is now following, I merely needed an opportunity to recant.”

Philip Hammond’s letter

Ann-Marie Trevelyan, a backbench MP who had raised concerns about the NICs rise, told the Guardian she welcomed the chancellor’s change of heart: “My leaflets had ‘no tax rises’ on them. That’s political capital we would never get back, and we are the party of sensible taxation.”

Hammond made clear that it was the charge of breaching a manifesto commitment that had made up Downing Street’s mind. “This government sets great store in the faith and trust of the British people,” he said.

Earlier the measure had dominated PMQs. Jeremy Corbyn said: “It seems to me that the government are in a bit of chaos here” – though he then frustrated some of his own backbenchers by switching tack to focus on education.

Angus Robertson, the SNP’s leader at Westminster, said: “We once had a prime minister who said, ‘The lady’s not for turning’ … My goodness.” He went on to welcome what he described as May’s “screeching, embarrassing U-turn on national insurance contributions”.

However, not all Conservatives were happy with the decision, which raised questions about the Conservatives’ authority to press ahead with controversial tax-and-spending decisions with a narrow parliamentary majority.

Ryan Shorthouse, director of Conservative thinktank Bright Blue, said: “It was perfectly reasonable and justifiable to narrow the gap in the contributions made by the self-employed and employees to the public purse.” He added that any spare resources should be devoted to Britain’s poorest families.

“The finances of the lowest earners in this country – whom the prime minister has described as ‘just about managing’ – are being hit by the the ongoing and deep cuts to in-work benefits in this parliament, introduced by the last chancellor. The focus of government should be softening these cuts, not reversing the class 4 NICS rise.”

Hammond promised to make no increases to NICs for the rest of this parliament; and said the government would widen the scope of a planned review into whether the self-employed should receive better paternity rights, to include other benefits too.

May opened the way to the U-turn on Thursday night at a press conference in Brussels after the European Council meeting, when she defended the principle of the NICs rise, but said the government would not legislate on it until the autumn.


Heather Stewart and Peter Walker

The GuardianTramp

Related Content

Article image
How the Conservatives pledged no rise in national insurance, then raised it
However you spin it, from David Cameron’s tweets to four unambiguous promises in the election manifesto, this was a pledge broken

Matthew Weaver

09, Mar, 2017 @6:49 PM

Article image
Self-employed hit by national insurance hike in budget
Philip Hammond appears to make manifesto U-turn, claiming NI tax benefits ‘can no longer be justified’

Simon Goodley and Heather Stewart

08, Mar, 2017 @2:24 PM

Article image
Few will spot the difference in national insurance – at first | Patrick Collinson
There is a lot of jiggery pokery going on with NI from 2018-19, but it’s in year two that the figures start to look painful

Patrick Collinson

09, Mar, 2017 @8:01 AM

Article image
Self-employed? See if you'll pay more in national insurance
From 2018 you could find that you’re paying hundreds of pounds a year extra

Patrick Collinson

11, Mar, 2017 @7:00 AM

Article image
Philip Hammond gave us a budget for tax avoiders and giant firms | John McDonnell
There is nothing progressive about cutting taxes for companies and the very wealthiest while hitting the self-employed

John McDonnell

11, Mar, 2017 @2:22 PM

Article image
MPs not appeased by May's decision to review self-employed tax hike
The prime minister hoped her announcement would defuse row that threatens to end in government defeat in the Commons

Peter Walker and Heather Stewart

10, Mar, 2017 @6:48 PM

Article image
Hammond was right to raise tax for self-employed, inquiry to say
Official review favours chancellor’s aborted budget pledge and levelling of taxation for different class of workers, MPs told

Simon Goodley and Robert Booth

30, Mar, 2017 @6:06 AM

Article image
May and Hammond face serious Tory revolt over tax on self-employed
18 Conservative MPs express opposition to budget measure, which threatens government’s Commons majority of 17

Peter Walker and Heather Stewart

09, Mar, 2017 @4:59 PM

Article image
Budget 2017: Philip Hammond faces row over tax rises for self-employed - as it happened
Live coverage, reaction and analysis to the chancellor’s first, and final, spring budget

Andrew Sparrow and Graeme Wearden

08, Mar, 2017 @6:13 PM

Article image
OmNICshambles: how it all went wrong for 'spreadsheet Phil' Hammond | Heather Stewart and Larry Elliott
Chancellor’s allies say tax rise for self-employed makes system fairer but it was the politics, not economics, that mattered

Heather Stewart and Larry Elliott

11, Mar, 2017 @7:00 AM