Hammond stings self-employed for £350m in tax raid
After targeting them in last year’s Budget...
PHILIP Hammond has cancelled a tax cut for three million selfemployed workers, in a U-turn that will cost them £350million a year.
The Chancellor has abandoned a pledge to cut National Insurance payments for the self-employed by £150 each – claiming that it would have had unintended consequences for low earners.
But campaigners said the reversal was instead driven by desperate Treasury efforts to save money.
Mike Cherry, chairman of the Federation of Small Businesses, said: ‘The selfemployed community has been let down today, missing out on a promise to reduce their tax burden.
‘This raises serious questions once again about the Government’s commitment to supporting the self-employed.’
The promise to abolish Class 2 National Insurance contributions was made by Mr Hammond’s predecessor George Osborne in 2016 amid efforts to trim down Britain’s gargantuan tax system.
Class 2 NICs are paid by selfemployed workers at the rate of £2.95 per week or around £150 a year. But people who work for themselves also pay Class 4 NICs, which are charged at 9 per cent on earnings above £8,424 and 2 per cent above £46,350.
It means they are effectively being taxed twice. Removing this double-billing rule would have cost the Treasury £350million annually, or £1billion until the financial year of the next election.
When he announced the plan, Mr Osborne said it would help put ‘rocket boosters on the back of enterprise’.
His 2016 Budget book said: ‘This will allow millions of selfemployed individuals to keep more of their money and invest it back into growing their business, as well as ending an outdated and complex feature of the National Insurance contributions system.’
But in 2017, Mr Hammond pushed back the date for the change by a year until April 2019. And last night Treasury minister Robert Jenrick told the House of Commons it would be dropped completely.
The Treasury claims it made this decision because scrapping Class 2 NICs would hurt around 300,000 self-employed low earners with profits of less than £6,000 a year.
At present they do not have to pay any National Insurance at all but can voluntarily choose to pay Class 2 NICs if they want to build up the right for a state pension in old age.
If Class 2 was abolished, the group would be shifted onto the much higher Class 3 rate of £14.65 a week – costing them £600 extra a year in tax.
In a written statement to Parliament, Mr Jenrick said: ‘A significant number of selfemployed individuals on the lowest profits would have seen the voluntary payment they make to maintain access to the State Pension rise substantially. Having listened to those likely to be affected by this we have concluded that it would not be right to proceed during this parliament, given the negative impacts it could have on some of the lowest earning in our society.’
Tory MP John Redwood said: ‘The Treasury should get behind small businesses and not clobber them with taxes. This will be very unpopular with the business community and with Tory voters.’
Mr Hammond was forced into a National Insurance Uturn after last year’s March Budget, when his bid to hike Class 4 NICs paid by selfemployed workers unravelled. Campaigners had branded it an attack on ‘white van man’.
‘This will be very unpopular’