Sign in / Join

Some support for Hammond as pressure for National Insurance hikes U-turn mounts

Under-pressure Chancellor Philip Hammond has been bolstered by support from leading economic commentators, as Conservative MPs stepped up demands for a rethink of his controversial National Insurance hike.

Former work and pensions secretary Iain Duncan Smith led Tory calls for a review of the £2 billion hit on the self-employed, urging the Chancellor to “reflect” on his decision before the autumn Budget.

Meanwhile, Labour MPs vowed to oppose the change, which they condemned as a clear breach of a Conservative manifesto pledge not to raise National Insurance contributions (NICs), while the Scottish National Party branded it a “tax on ambition”.

With at least 10 Conservative backbenchers voicing misgivings about the Budget measure, Labour made clear that it hopes to force a U-turn in the face of the threat to Prime Minister Theresa May’s narrow 17-seat Commons majority.

Describing the NICs announcement as a “shocker”, shadow chancellor John McDonnell told BBC1’s Breakfast: “Certainly the Labour Party will oppose this. I think other parties will as well. We may be able to persuade enough Conservative MPs to ask the Chancellor now to think again.”

Labour will oppose the £2bn Tory tax on self employed low and middle earners. #Budget2017

— John McDonnell MP (@johnmcdonnellMP) March 8, 2017

Tory tax hikes whilst doing nothing to address the crisis in our NHS. Tory Budget failure. #Budget2017

— John McDonnell MP (@johnmcdonnellMP) March 8, 2017

But the Resolution Foundation think tank – which campaigns for low-income workers – hailed the NICs rise as “welcome and progressive”, while the influential Institute for Fiscal Studies said it would go only a “small fraction” of the way to redressing an imbalance in the tax system in favour of the self-employed.

Rather than criticising Mr Hammond, IFS director Paul Johnson said it was “foolish” of David Cameron to make his election promise not to raise them.

Instead, both organisations highlighted “dreadful” prospects for earnings, with the Resolution Foundation saying workers were suffering the slowest period of pay growth since the time of the Napoleonic Wars 210 years ago.

The chairman of a Government-commissioned review of modern employment practices, RSA chief executive Matthew Taylor, described the 2% increase in Class 4 NICs as “progressive (and) economically rational”, with the bulk of the burden falling on wealthier self-employed people.

In a round of post-Budget broadcast interviews, the Chancellor insisted his proposals – including a cut in tax-free dividend allowances which will also hit the self-employed – were “fair and appropriate”.

But Mr Hammond said he was “prepared to listen to backbenchers” on the issue, and a Downing Street spokesman declined four times to rule out a review of the decision.

Mr Duncan Smith indicated that he would like an “adjustment” so the NIC increases kick at a higher earnings level than the £16,250 envisaged by the Chancellor.

“I would like to see this kept under review,” Mr Duncan Smith told Sky News.

The NICs hike, which will cost 2.5 million self-employed people an average £240 a year, was savaged by normally Tory-supporting newspapers, overshadowing Budget announcements of cash for social care and education.

And several Tories broke ranks to demand a rethink before the changes come into effect in April 2018.

Former small business minister Anna Soubry suggested the dividend allowance cut from £5,000 to £2,000 could be Mr Hammond’s “first U-turn”.

Liberal Democrats called on the Chancellor to delay the implementation of the NICs changes until after the Taylor Review reports. Leader Tim Farron said Mr Hammond’s “omNICshambles Budget” was “already unravelling and the Tories will pay a heavy price for it”.

The Chancellor said the gap in benefits received by self-employed workers and employees which has historically justified their different treatment by the welfare system “no longer exists”, except in relation to parental rights which he has pledged to review.

And he denied breaching the manifesto pledge, insisting the issue was “behind us” because legislation passed after the election had made clear only employee’s NICs were protected.

Mr Hammond told LBC radio: “This is a fair measure, it is a modest measure.”