Ross Clark

Biggest loser from this Budget? The credibility of Tory tax promises

Biggest loser from this Budget? The credibility of Tory tax promises
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There is a very big winner from today’s budget. Not adults in social care, not schools, but Ukip. Philip Hammond has handed a huge political opportunity: to position itself as the party of the self-employed: the taxi driver, the brickie, the plumber, the small shop-owner. These used to be natural Tories. From today, with Hammond imposing a two per cent extra tax on their income, and breaking a manifesto commitment in the process, they will be looking for a new political home. No wonder Suzanne Evans was tweeting about the change within seconds of it being made.

The Treasury’s argument for raising National Insurance Contributions on the self-employed is that the current arrangements are unfair to the employed, who pay a higher rate of NIC. Moreover, employers also pay NICs on their employees, which they do not pay if they employ them on a freelance basis. The result is that companies have a large incentive to reclassify workers as self-employed, in order to avoid this NIC bill – as well as to avoid employment legislation, paying for paid holidays etc. Hammond worries that the steady drift of employees to self-employment will reduce his revenue.

Fair enough, but it isn’t so much the workers who benefit when big business decides to hire them on a self-employed rather than an employment basis: it is their employers. True, at present the workers gain a three per cent reduction in NIC, but they also lose sick pay, holiday pay, protection from unfair dismissal and numerous other benefits. Now, Hammond has decided to punish them further. Meanwhile, the employers will continue to have a strong incentive to redefine workers as self-employed.

Why on Earth didn’t Hammond place the extra tax on employers who are hiring workers on a self-employed basis? It would have been easy enough to do: hire someone by the hour for more than 20 hours a week and you become liable to pay NICs whether they are employed or self-employed.   He could have done something like that. Instead, he chose to punish the workers themselves.  

In doing so he has placed the Conservatives as very much the friend of big business, and against the small guy. In normal circumstances you would expect Labour to have picked up on this big time. But Corbyn’s rambling reply to the Budget speech hardly mentioned the self-employed. Ukip, though, has been handed a potential huge new base of support.

Until today I thought that the Conservatives had the next election in the bag. Now I am not so sure. Hammond’s attack on the self-employed – contrary to the Conservatives’ 2015 manifesto promise to keep NIC rates unchanged – could prove to be their ‘read my lips’ moment: a reference to George H Bush’s broken promise not to raise taxes.