Hammond defends tax rise as Tories join backlash
Think-tanks say wages will grow at slowest pace since Napoleonic Wars
Downing Street has stood by Chancellor Philip Hammond’s controversial increase to National Insurance for the self-employed, insisting it has not broken a key Conservative manifesto pledge.
Mr Hammond ran a gauntlet of interviews yesterday to rejected accusations that the Tories lied when they promised “no increases in VAT, National Insurance contributions or income tax” at the 2015 election.
Pressure was growing from the party’s own backbenchers, with one government minister saying ministers “should apologise” for the tax hike.
However, the Chancellor was offered some relief when two respected economic thinktanks backed the policy as a “progressive” way to raise additional revenue for the Treasury.
Mr Hammond said the 2 per cent increase over two years in Class 4 National Insurance paid by the self-employed was necessary because Brexit meant “Britain’s circumstances have changed”.
The Chancellor said the tax, which adds an average £240 to bills those earning more than £16,250, was a “fair contribution” and partially closed the gap between contributions for self-employed and employees.
He added: “No Conservative likes to increase tax, but we also have to pay for our public services and we have to invest in Britain’s future.”
At least 18 Tory backbenchers publicly criticised the policy yesterday, and in the most embarrassing intervention for the government, Wales Minister Guto Bebb told the BBC: “I believe we should apologise. I will apologise to every voter in Wales that read the Conservative manifesto in the 2015 election.”
Downing Street said it still had confidence in Mr Bebb despite his breach of collective responsibility.
“The Prime Minister and Chancellor have agreed on this Budget,” a No 10 spokesman said. However, Downing Street appeared to leave the door open to a U-turn when the spokesman declined four times to say the tax rise would be implemented when asked.
But the Resolution Foundation think-tank hailed the move as “welcome and progressive” for placing the greatest burden on the highest earners, while the influential Institute for Fiscal Studies said it would go only a “small fraction” of the way to redressing an imbalance in the tax system in favour of the self-employed.
Rather than criticising Mr Hammond, IFS director Paul Johnson said it was “foolish” of David Cameron to make his election promise not to raise them.
Instead, both organisations highlighted “dreadful” prospects for earnings, with the Resolution Foundation saying workers pay growth was at its slowest since the Napoleonic Wars, around 200 years ago.
And the IFS said 600,000 three-child families will be an average of £2,500 a year worse off once changes to welfare are taken into account.
“On current forecasts average earnings will be no higher in 2022 than they were in 2007,” Mr Johnson said.
“Fifteen years without a pay rise. I’m rather lost for superlatives. This is completely unprecedented.”
Budget day is traditionally a good day for sneaking out bad news; or, perhaps, the kind of good news that might in more radical times have had workers rioting in the streets.
So it’s perhaps not surprising that Wednesday was the day chosen by the former chancellor, George Osborne, to announce details of his new job with asset management firm Black Rock, for which – in addition to his parliamentary salary – he will be paid £650,000 a year for one day’s work a week. That, for the record, is an hourly rate of more than £1,600, or about 200 times the sum proclaimed by Osborne during his chancellorship as a “living wage”, at least for ordinary mortals.
It’s all par for the course, though, in an economy which now almost seems to pride itself on being one of the most grotesquely unequal in the developed world; Wednesday was also the day chosen by Royal Bank of Scotland to announce that after a year of distinctly mediocre performance, including a loss of £7 billion, they are giving their senior executives an annual bonus package worth £16 million at current share values.
In 21st century Britain, in other words, we’ve become shockingly accustomed to this kind of absurd and irrational overreward for the rich, accompanied by an ever-harsher climate of low pay and insecure employment for the rest of us; which perhaps makes it slightly surprising that in seeking to raise National Insurance payments for the self-employed, in Wednesday’s Budget, the current Chancellor, Philip Hammond, seems to have run into much fiercer storm of opposition than he might have anticipated. In the first place, the proposed tax change breaks a categorical manifesto pledge by the Tories that they would not increase either income tax or National Insurance; and in the second place, it will hit the fat incomes of the tiny minority of very wealthy people who are classed as self-employed, including senior barristers.
What really seems to be riling backbench Tory MPS, though, is the sense that both this move, and the Chancellor’s reduction in the limit for people taking tax-free dividends from their own small companies, will hit at the very demographic which has enabled the Tories to claim that while ordinary earnings have largely been flatlining or falling in real terms since the 2008 crash, employment has nonetheless remained high. 15 per cent of Britain’s workforce is now self-employed, and that figure is rising rapidly; self-employment accounts for almost half of the recovery in employment figures since the crash. And it’s hardly inaccurate to say that for many of those workers, self-employment – or work in the so-called “gig economy” – amounts to little more than a disguised form of unemployment, or severe underemployment. Half of them earn less than £13,200 a year; and they experience levels of absolute job insecurity and income variability, without sick pay, parental leave, or unemployment benefit during lean times, that those in regular employment can barely imagine.
In striking at the self-employed, Mr Hammond therefore gets it in the neck from two directions. He gets it from Tories, for betraying those who have soldiered on bravely, embracing the idea that they are a new generation of entrepreneurs, when in fact they are mainly just workers suffering a drastic cut in their pay and working conditions. And he gets it from Labour, who are at last rightly beginning to grasp that “self-employed”, in many contexts, is now just another term for the working poor.
And if there is one thing of which we can be certain, in this strange post-brexit world, and this strange one-party Britain, it’s that whether the National Insurance change is implemented or not, no-one is likely to lift a finger, any time soon, to end the shameful redistribution of wealth from ordinary workers to the extremely rich that has been such a striking feature of Britain’s economy over the last generation. Whenever he is questioned about Brexit, Philip Hammond makes increasingly worrying threats about the steps he will take to make the UK a lean, mean competitor, outside the EU; essentially, he seems happy to sacrifice the wellbeing of the great mass of British people – their wages, employment rights and environmental protections – on the altar of making Britain “a great place to do business”. Labour protests, but cannot achieve enough unity to gain any traction on a UK mainstream political debate now completely dominated by the voices of the right and far right; the SNP make a bold and electorally successful pitch against the ideology of austerity, but can do little or nothing to stop the spending cuts and low pay juggernaut, without extracting more taxes from those ordinary workers who have already suffered most.
Yet somewhere, behind the current roars of Tory triumphalism, the truth is out there; the truth that £1,600-an-hour-man George Osborne was one of the most disastrous chancellors in UK history, driven from the outset by radical right-wing ideology rather than practical economics. Tory economic policy since 2010 has drastically increased the national debt, slowed the economy precisely when it needed support, failed to invest in Britain’s industrial and energy future, inflicted untold harm and humiliation on some of the most vulnerable in society, and left Britain in the state graphically depicted in a Financial Times chart this week, which showed the UK alone of all the developed countries in the quadrant where GDP has increased substantially, while wages have slumped, by as much 10 per cent in real terms.
The Tories’ economic performance is dire, in other words, and their continuing austerity policy – affirmed by the Chancellor this week – nonsense on stilts. Yet what that graph also reveals, alas, is a people not yet prepared to wake up, look at the numbers, smell the coffee, and hand this bunch of guffawing reactionaries their richly-deserved marching orders; as well as a failure of leadership on the centreleft that has left the people at a loss for a serious alternative – not so much here in Scotland, where the SNP at least talks the talk of building a more socially sustainable future, but across a UK which, whether together or apart, surely deserves better than this.
Self-employed is in many cases just another word for describing the working poor, writes Joyce Mcmillan