‘Screeching U-turn’ over tax rise after MPS protest
●Chancellor reverses hike in National Insurance just one week after Budget
Philip Hammond has been forced into a “screeching, embarrassing U-turn”, reversing controversial tax rises at the heart of his first Budget just a week after it was delivered.
The Chancellor said the government would no longer be increasing National Insurance contributions for the self-employed, admitting that the proposal broke the spirit of a 2015 Conservative manifesto pledge not to raise taxes.
In a sign of the danger faced by a government with a working majority of just 17, Conservative backbenchers scored a major victory after voicing their anger at plans to tax independent tradesmen and entrepreneurs.
The scrapped tax rise leaves a £2 billion hole in a Budget that the Chancellor had last week touted as not increasing public borrowing. Mr Hammond pledged to bring forward proposals to fill that gap in the autumn.
In a letter to MPS yesterday morning, Mr Hammond said it was “very important both to me and to the Prime Minister that we are compli- ant not just with the letter, but also the spirit, of the commitments that were made”.
The Chancellor said a “triple-lock” put into legislation in 2015 made clear that Class 1 National Insurance for employees would not rise, but did not mention Class 4 National Insurance.
But Mr Hammond added that “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”.
A review by Matthew Taylor, the chief executive of the RSA and a former adviser to Tony Blair, will now consider the ways in which employees and the self-employed are treated differently by the tax system, as well as looking at whether benefits such as paid parental leave should be extended to the self-employed.
Announcing the decision at Prime Minister’s Questions, Theresa May insisted: “We made a commitment not to raise tax, and we put our commitment into the tax law. The measures we put forward in the Budget last week were consistent with those locks.”
She added: “As a number of my
parliamentary colleagues have been pointing out in recent days, the trend towards greater self-employment does create a structural issue in the tax base on which we will have to act. We want to ensure we maintain fairness in the tax system.”
SNP Westminster leader Angus Robertson described the move as a “screeching embarrassing U-turn” to cheers from MPS.
Invoking Margaret Thatcher’s famous phrase, he said: “We once had a prime minister who said that the lady is not for turning. My goodness.
“Isn’t it welcome that the Prime Minister today has admitted she is for turning with her screeching embarrassing U-turn on National Insurance contributions?”
Labour leader Jeremy Corbyn said the climbdown had left “a black hole in the Budget” and called on the Prime Minister to apologise to the country, telling the House of Commons: “It seems to me like a government in a bit of chaos.”
However, despite catching a government which was on the back foot, Mr Corbyn was accused by critics of failing to exploit Mr Hammond’s weakness.
Mr Blair’s former spokesman Alastair Campbell tweeted: “Unless the Corbyn team actually planned for that to be a car crash, the inquest should be long, hard and honest. He just can’t do it.”
The decision was made by the Chancellor and the Prime Minister at 8am, and was not discussed at Cabinet on Tuesday.
Conservative MPS were still defending the policy right up until the announcement was made public, 20 minutes before PMQS.
International development minister Rory Stewart was interrupted live on the BBC while speaking in support of the National Insurance rise to be told of the government’s U-turn, while backbencher Sir Desmond sway ne complained in the House of Commons that a newspaper article defending the policy had just been sent to printers.
“The Prime Minister and Chancellor have heard what colleagues have had to say in recent days and they have taken the decision that has been announced to Parliament at the first opportunity,” the Prime Minister’s spokesman said. “They wished to reflect the spirit of the manifesto.”
The spokesman said Mrs May continued to have full confidence in Mr Hammond and had no concerns about his judgment as Chancellor. He added that all Budget spending commitments will be met, including increased spending on social care and skills which were to be partly paid for by the tax rise.
Facing Mr Hammond in the Commons later, shadow chancellor Mr Mcdonnell said: “This is chaos. It’s shocking and humiliating that the Chancellor has been forced to come here to reverse a key Budget decision announced less than a week ago.
“If the Chancellor had spent less time writing stale jokes for his speech and the Prime Minister less time guffawing like a feeding seal on those benches, we would not have been landed with this mess.”
The Chancellor was heckled during his statement by opposition MPS, with Labour’s Yvette Cooper making the most of Mr Hammond’s announcement that spring Budgets would be abolished from this year onwards.
“The Prime Minister has just done a £2bn Budget U-turn in the space of about a week,” she said to cheers.
“Last year the government did a £4bn U-turn in the space of five days. Is that why they want to abolish spring Budgets? Because they just keep ripping them up?”
Downing Street declined to speculate on whether the Chancellor would choose to raise other taxes or cut spending but ruled out additional borrowing by saying that the government remained committed to ensuring the country “lives within its means”.
Stephen Herring, the head of taxation at the Institute of Directors, said: “The whole National Insurance saga can only be described as chaotic. The irony is that there are good reasons to look at levelling the playing field for employees and the selfemployed, as the tax on direct employment is disproportionately higher.
“However, it would have been much better if, as the IOD had suggested, the government had waited for the conclusions of its own review of modern employment, and reformed wholesale how different forms of work are taxed.
“Instead they announced they would raise one tax in isolation, only to cancel it a week later.
“The Prime Minister today has admitted she is for turning with her screeching embarrassing U-turn on National Insurance contributions”
ANGUS ROBERTSON MP
The UK government’s U-turn over National Insurance contributions was farcical to the point of almost being funny, if it hadn’t presented so many people with a week of sleepless nights between last Wednesday’s Budget and yesterday’s reversal.
International development minister Rory Stewart was interrupted live on TV to be told of his superiors’ change of heart just as he was speaking in support of the controversial measure, while party colleague Sir Desmond Swayne bemoaned the fact a newspaper article defending the policy was about to publish.
And when Philip Hammond was asked who had first realised that the measure was in breach of the Conservative manifesto, the Chancellor replied: “I think it was Laura Kuenssberg on the BBC.”
Not to be outdone, Labour leader Jeremy Corbyn made the lamest of contributions –“It seems to me like a government in a bit of chaos” – when presented with a golden opportunity to lacerate the government. Denis Healey’s famous remark about being “savaged by a dead sheep” came to mind.
Of course, the entire episode has been no laughing matter for those who were at the sharp end of the proposed measure. More than a million self-employed people faced paying increased contributions, which was described as a penalty for self-starters and entrepreneurs, who were being asked to fund the raising of £2 billion to pay for spending commitments on social care and business rate support. Why target the self-employed, instead of the businesses who use their services and as a result do not have to pay National Insurance contributions?
Whether the measure was unfair or not is a matter of debate, although it was clear from the backlash that it was deeply unpopular. For a start, the government should have waited for the Taylor Report on employment before attempting significant change.
Even more fundamentally, the Chancellor should not have broken a manifesto commitment, which further erodes the trust between public and politicians. If a manifesto pledge cannot be taken at its word, then what information can voters rely on when they make their choice at the ballot box?
But regardless of the rights or wrongs of the policy, there are two serious consequences still to consider. The first is where the £2bn will be raised, if it is not coming from taxing the self-employed. Last week’s Budget was built around this measure, and yesterday’s U-turn undermines just about every other aspect of the Chancellor’s balancing act.
The second question is the competence of the Chancellor. Mr Hammond played safe in last year’s Autumn Statement when he was new in the job, at a time when uncertainty over Brexit made any bold moves inadvisable. The spring Budget was the first real test of his tenure, and he has failed spectacularly. Saying that he would fix the problem in the autumn is the stuff of amateur hour. The Prime Minister should have a succession plan ready for No 11 Downing Street –it may be required before much longer.