Just one week after it was announced in the Budget on the 8th March, Phillip Hammond has been embarrassingly forced to withdraw the planned increase in Class 4 National Insurance Contributions.
To the relief of the self-employed workforce, Hammond was forced to make the announcement following wide criticism that the increase would be breaking a key election manifesto pledge. He stated in a letter to Tory MP’s:
“In the light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measure set out in the Budget.”
The Spring Budget announced a rise of Class 4 NIC on self-employed business profits above a certain limit from 9% to 10% in April 2018 and to 11% in April 2019. An outcry from both the self-employed workforce, industry professionals and Tory backbenchers ensued, and PM Theresa May was forced to step in to defend the decision:
“The decision on national insurance was taken in the context of a rapidly changing labour market in which the number of people in self-employment, often doing the same work as people employed more traditionally is rising rapidly.”
Alongside the off-payroll working in the public sector changes, the general feeling of attack on the self-employed continues, and it is likely that the tax gap will continue to close. However, it has also been noted that as the tax gap closes, employment rights also need to be considered.
Whilst the NIC increase has been withdrawn (until the Autumn), the abolishment of the flat-rate Class 2 NICs will still go ahead from April 2018, as well as the decrease in tax-free dividend allowance from £5,000 to £2,000.
Good news and an unusual outbreak of common sense. What was really discouraging was that many senior Conservative politicians didn’t even know it was a manifesto pledge. Shows how much weight they put behind such promises.
So they’re still trying to stamp out enterprise and investment rewards… but now only focused on people who own shares in companies (small limited companies and pensioners), not as broad-sweeping as all self-employed people, so politically speaking: it will lose them votes, but not as many as explicitly breaking manifesto pledges.
There used to be a time when the Conservatives championed small government and tax incentives to invest, mobilise the the workforce and promote entrepreneurial behaviour…. am I missing something, but this seems to be aimed at exact the opposite!
So, the 1% NI was the problem? After cancelling class 2?
Big deal!
What about the really big deal, the massive 7.5% dividend tax? Why is no one making a fuss about that?
It seems that the Inland Revenue may have done another RIA balls-up like IR35, and again the govt lapped it up without doing due diligence on the numbers.
The only difference this time is that while IR35 was not an election loser for True Labour, this one could well have been for the Tories.