Tax blow for self-employed
THE Chancellor has been branded “completely un-conservative” for scrapping a tax cut promised to millions of self-employed workers, in an attempt to find extra cash for the NHS.
Philip Hammond has announced he is going back on a government pledge to abolish Class 2 National Insurance contributions (NICS), raising an extra £435million a year for the Treasury.
Branded a “stealth tax”, the decision will leave 3.4million people an average of £134 a year worse off. Class 2 NICS apply to the self-employed with profits of between £6,205 and £8,424 a year.
George Osborne announced in his 2015 Budget that he would abolish them to simplify the tax system for the self-employed. The break was meant to be implemented this year, but Mr Hammond had delayed it until April 2019.
Yesterday, he quietly announced he was scrapping the measure in a written ministerial statement.
Last year, the Chancellor faced a fierce backlash when he tried to raise
the rates for Class 4 NICS, which apply to self-employed people with profits of more than £8,424. He was accused of breaking Tory manifesto pledges and eventually ditched the plan. However, cancelling the tax cut has been seen as another attack on the self-employed.
Priti Patel, the former international development secretary, said: “It is completely un-conservative to be taking away a tax break from self-employed people. The tax burden is far too high on working people... We should be making the case for simpler taxes, lower taxes and support to selfemployed and entrepreneurs.”
Sam Dumitriu, head of research at the Adam Smith Institute, said: “This is a stealth tax rise. Philip Hammond didn’t win the argument ... on raising Class 4 NICS. As a result, he is going back on scrapping Class 2 as a back-up.”
It is understood the money will be used to fund the Prime Minister’s commitment of more money for the NHS.
Steve Webb, the former pensions minister, said: “You start to realise how big a promise £20billion a year for the NHS is. All corners of the tax system are being raided ... at the moment. To go on charging Class 2 NICS is just farcical.”
John Mcdonnell, the shadow chancellor, accused Mr Hammond of “betraying” the self-employed, who he said had been “let down again”.
About 300,000 lower-income people do not have to pay NI but volunteer to, in order to qualify for the state pension. Critics of abolishing Class 2 NICS said the move would have forced those people to pay a higher rate.
The Treasury statement said: “A significant number of self-employed 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 ... we have concluded that it would not be right to proceed during this parliament... Furthermore, it has become clear that, to the extent that the Government could address these concerns, the options identified introduce greater complexity to the tax system, undermining the original objective.”