One week after unveiling a controversial increase in National Insurance Contributions (NICs) for the self-employed at the Spring Budget, the Government performed an unexpected U-turn.
In a letter to the Chairman of the Treasury Select Committee, Chancellor of the Exchequer Philip Hammond announced that planned increases to Class 4 NICs would not take place during the current Parliament, which is scheduled to end by 2020.
Under the Budget proposals, Class 4 NICs would have increased from 9% to 10% in April 2018 and from 10% to 11% in April 2019. The changes were intended to redress the imbalance between employees and the self-employed; however, the uplift was heavily criticised for breaking the Conservative Party’s 2015 manifesto pledge not to raise NICs.
The British Chambers of Commerce (BCC) welcomed the announcement and urged the Government to examine business and employment taxation “in the round” in order to ensure that the tax system is fair. Meanwhile, the Federation of Small Businesses (FSB), which had described the decision as a “tax grab” on the self-employed, hailed the government’s volte-face as “a victory for our economy’s strivers and risk-takers”.
The planned increases were expected to raise £325 million in 2018-19, and £645 million in 2019-20, provoked questions over how the Chancellor intends to plug the gap. Mr Hammond said that the cost of the change would be funded by measures that will be revealed at the Autumn Budget later this year.