Budget punishes self-employed and savers in £4bn sting

Tory manifesto pledge broken as solo workers hammered by £2bn national insurance hike

BRITAIN’S army of self-employed will be hammered by a ‘devastating’ £2billion tax raid.

Around 2.48million will pay up to £700 more annually by 2019 in National Insurance contributions.

Self-employed workers currently pay 9 per cent on their earnings in NICs every year.

But this will rise to 10 per cent from next April and to 11 per cent the year after

The change will net the Government an additional £2.06billion over just four years.

Someone earning £30,000 a year will see their tax bill leap by £418 between 2017-18 and 2019-20 as a result of yesterday’s changes, according to accountancy giant Deloitte.

And someone earning £45,000 will pay £718 a year more in what is known as Class 4 National Insurance.

Business groups have accused Ministers of using the self-employed as a cash cow and putting thousands of struggling entrepreneurs under financial pressure.

They also say the Government has gone back on a promise not to raise National Insurance rates.

In the Queen’s Speech in May 2015, the Government pledged there would be ‘no rises in Income Tax rates, Value Added Tax or National Insurance for the next five years’.

But the legislation which was then passed in Parliament only promised to freeze National Insurance for employed people, known as Class 1.

Class 4 national insurance – paid by the self-employed – was exempt from this pledge, but many did not realise. Ian Cass, of The Forum of Private Business, said: ‘Small businesses are being used as a cash cow by the Government.

‘Ministers say they want to encourage start-up businesses but they are throttling the life out of them by hitting them with tax rises from every angle – first business rates and now national insurance.’

Mr Cass added: ‘Self-employed people set up businesses because they are passionate about what they do and yet thousands find themselves on the breadline each month.

‘But many will no doubt decide it is not worth it financially and find themselves a job instead.

‘This will be a tragedy for the country which needs small businesses to thrive.’

Alex Henderson, tax partner at accountancy giant PwC, said: ‘The worry will be that this is just the first bite of the cherry. They could carry on raising taxes for the selfemployed to bring them in line with employees.’

Ed Molyneux of FreeAgent, a software firm for freelancers, says: ‘The decision to raise National Insurance will be potentially devastating for freelancers and contractors across the UK. Many have none of the employment rights or the security that employed workers do and there must be some recognition for that.’

The self-employed population has ballooned in recent years from 3.8million in 2008 to around 4.8million now. They now account for one in seven of the UK workforce.

But this growth in entrepreneurs has left the Treasury with a hole in its finances because the selfemployed pay lower tax, in recognition of less generous ‘employee’ benefits such as paternity leave, sick pay and holiday pay.

Traditionally, they paid significantly less National Insurance because they received a lower state pension.

But since last April, they have been entitled to the same flat-rate state pension as employees.

The Government argues the selfemployed should pay now pay more for this privilege. The Chancellor said yesterday: ‘The difference in National Insurance contributions is no longer justified by the difference in benefits entitlement.

‘Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way.’

Mr Hammond said he is helping businesses by abolishing the other type of National Insurance paid by the self-employed – Class 2 contributions – from next year. In last year’s autumn statement, he announced he would scrap the £2.80 a week tax.

He claims this will help to offset the big rise in Class 4 contributions, which will be introduced at the same time next April.

Axing Class 2 means that, while 2.48million will be hit by a rise in Class 4, around 1.6million of these will end up paying more National Insurance overall.

It also means the self-employed who earn less than £16,250 will still see a reduction in their bills. But this is of little comfort to those facing rises of more than £200 in a single year.

MPs have branded the increase in Class 4 contributions as ‘an attack on aspiration’.

Tim Walford-Fitzgerald, of accountancy firm HW Fisher & Company, said: ‘Narrowing the tax difference does nothing to reduce the inequality of rights enjoyed by those working for themselves compared to people in stable employment.

‘The regular wage slip is a world apart from the increased risks and uncertainty involved in running your own business.’