Plans to increase National Insurance rates for self-employed people – announced in the Budget last week – have been dropped. Chancellor Philip Hammond has said the government will not proceed with the increases which were criticised for breaking a 2015 manifesto pledge.
He told MPs in a Commons statement: “There will be no increases in National Insurance rates in this Parliament.”
Labour’s Jeremy Corbyn said the U-turn showed a government “in chaos”.
Mr Hammond had faced a backlash by Conservative backbenchers last week, who accused him of breaking a general election manifesto commitment not to put up National Insurance, income tax or VAT.
Explaining his change of heart to MPs, the chancellor 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.
“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.”
Media captionJohn McDonnell said the government should apologise for the “blunder”
Media captionThe chancellor was asked who alerted him to the manifesto breach
Mr Hammond’s Budget announcement would have increased Class 4 NICs from 9% to 10% in April 2018, and to 11% in 2019, to bring it closer to the 12% currently paid by employees.
He said “most commentators” believed the “sharp increase” in self-employment over the last few years had in part been “driven by differences in tax treatment”.
He would use the Autumn Budget to set out further measures to “fund in full” the £2bn lost from NICs, he said.
But Tom McPhail, Hargreaves Lansdown’s head of retirement policy, argued the U-turn would increase pressure in other areas of fiscal policy – and “may increase the risk of further pension tax tinkering in the Autumn Budget”.
Labour’s shadow chancellor John McDonnell described the climb-down as “chaos – it’s shocking and humiliating that you have been forced to come here to reverse a key budget decision announced less than a week ago”.
He told him to spend less time writing “stale jokes” for his Budget speech, and turning on the prime minister sitting next to him, he added she should also have spent less time “guffawing like a feeding seal”.