U-turn, flip-flop, whatever you want to call it, there’s no getting away from the fact that Philip Hammond’s policy reversal on National Insurance is hugely embarrassing both for him and the government.
Just one week after the Chancellor reneged on a manifesto promise not to raise taxes, he bowed to pressure and announced that the hike in National Insurance Contributions (NICs) for the self-employed would not go ahead.
According to The Telegraph, Theresa May told Hammond that ‘we are reversing this – I don’t care how bad it is for you’. The news comes as welcome relief for millions of self-employed who were facing an increase in Class 4 NICs. Under the now defunct proposals, these payments were due to rise from 9 per cent to 10 per cent next April and 11 per cent in 2019. That would have affected self-employed earnings between £8,060 and £43,000.
This might seem like a small increase but it’s a tax rise nonetheless. Calculations by Hargreaves Lansdown suggest a self-employed worker earning £30,000 a year would have paid £282 more national insurance in 2019 than in 2016.
Many people argue – the Chancellor included – that the self-employed tax regime should be made more compatible with the PAYE system. Given the substantial rise in self-employment in recent years, proponents of tax increases for this group say that the current tax regime is undermining the taxman’s ability to get revenues in.
Piffle. For a start, a driving factor in the swelling of the self-employed ranks has been redundancy. Despite what some commentators claim, self-employment is not always a choice, rather an economic necessity prompted by job losses, cutbacks and an economy that has not been kind to a plethora of different sectors. And the idea that anyone decides to give up the security of a staff job for the so-called tax advantages of self-employment is utter nonsense.
Then there are the people who actively take the decision to strike out on their own, either in an industry they know well or one they want to work in. These people are brave. They are risk-takers. They are entrepreneurs. The idea that the Tories would want to punish that initiative is part of the reason why Hammond came under fire from all sides of the political spectrum.
And let’s not forget that the self-employed miss out on many of the benefits afforded to those with a guaranteed monthly pay packet. Yes, there are many great things about being your own boss but they do not include the following: paid holidays, paid sick-leave, a pension, a company healthcare plan. Oh, and if you’re thinking about applying for a mortgage, a loan or a credit card, be prepared for a knock-back. Lenders don’t like the self-employed. Then there’s the paltry maternity pay. I could go on.
Self-employment is scary. It’s unrelenting and it’s hard work. I’ve been self-employed for seven years and it never gets easier. Instead of making the experience more difficult, the government should be doing all it can to support the 4.5 million people, who like me, often work into the night and at weekends. Rowing back on a NICs rise is fine but let’s not kid ourselves here: the Chancellor is no friend to the self-employed.
Helen Nugent is Online Money Editor of The Spectator
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