The government has announced a u-turn over its controversial plans to change the system of National Insurance Contributions for the self-employed.
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Chancellor keen to stick to manifesto ‘spirit’
Chancellor Philip Hammond set out the retreat in a letter to the Treasury committee just ahead of today’s Prime Minister’s Questions, saying that the government would abandon the plans in order to stay within the “spirit” of their manifesto commitment not to increase National Insurance Contributions.
He wrote: “Since the Budget…there has been much comment on the question of commitments made in our 2015 manifesto. Ahead of the Autumn Statement last year, the Prime Minister and I decided that, however difficult the fiscal challenges we face, the tax-lock and spending ring-fence commitments we have made for this Parliament should be honoured in full.
“The measures proposed in the Budget fall within the constraints set out by the tax-lock legislation and the spending ring-fences. However, in light of the debate over the last few days it is clear that compliance with the “legislative” test of the Manifesto commitment is not adequate.”
U-turn follows huge swell in UK self-employed numbers
The Chancellor’s original plans, as announced in last week’s Budget, affected only Class 4 National Insurance Contributions. Analysis from the Resolution Foundation suggested that the bulk of any increases would be assumed by the highest paying self-employed, and that those on the lowest incomes may actually see a tax cut thanks to the forthcoming abolition of Class 2 NICs, with which the Chancellor has confirmed the government intends to continue.
The plans and the u-turn come in the wake of a consistent and large-scale increase in the number of self-employed people working in the UK. The government has said that the introduction of the new State Pension in April will reduce the discrepancy in entitlements available to self-employed and employed people to the point where the lower rate of NICs paid by the self-employed is no longer justified.
Meanwhile Labour’s Jeremy Corbyn has insisted that the government must do more to tackle ‘disguised self-employment’, under which companies insist that workers take self-employed contracts in order to reduce employers’ tax liabilities.
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