Hammond under fire over small business
PHILIP Hammond has been accused of jeopardising new business start-ups with a hike in National Insurance contributions (NICs) for the self-employed.
The Federation of Small Businesses (FSB) said the increase amounted to a £1 billion-a-year grab on people who set up new companies, while Labour said he had breached a Conservative manifesto pledge on NICs.
FSB chairman Mike Cherry said it would simply drive up costs and undermine the Government’s aim of encouraging entrepreneurs to grow their businesses. He added: “Future growth of the UK’s 4.8 million-strong self-employed population is now at risk.”
Head of taxation at the Institute of Directors Stephen Herring, however, said that while Mr Hammond would take “a lot of political pain”, he was right to start creating a “level playing field” for employees and the self-employed.
“There will be many contractors, people in traditionally self-employed occupations, and entrepreneurs who will pay more because of these changes, but in a flexible modern economy this is a journey we were always going to have to embark on,” he said.
Treasury figures showed the increase in so-called Class 4 contributions from 9% to 11% over two years, would raise an additional £2 billion over two years.
But when the abolition of Class 2 contributions announced by his predecessor George Osborne is taken into account, the net increase in revenues for the Exchequer is £145 million a year.
Mr Hammond said the overall average loss to self-employed people would amount to only 60p a week, while all those earning less than £16,250 will still see a reduction in their bills.
The Chancellor said the “dramatically different” treatment of the selfemployed and employees in the NI system could no longer be justified.
Nigel Keohane, research director at the Social Market Foundation think tank, said the move represented a “colossal change” to the tax system.
While Mr Hammond said the Government would be looking to address continuing discrepancies when it came to parental benefits, Mr Keohane said that for the self-employed, entitlement to sick pay was just as crucial.
“The self-employed are half as likely to take sick days as employed people and they often cite lack of sick pay as a problem,” he said.
However Resolution Foundation director Torsten Bell said most selfemployed people would actually be better off.
“There are lots of good reasons for people to be self-employed but unfair and expensive tax advantages shouldn’t be one,” he said.
“By abolishing Class 2 NICs and staggering the increase in Class 4 NICs, most self-employed workers will actually be better off next year, with higher paid accountants and management consultants taking the biggest hit.”