Westminster was stunned today by news that the plan to increase Class 4 National Insurance Contribution (NICs) for the self-employed was to be dropped. Chancellor Philip Hammond made a statement and wrote to MPs announcing this swift shift only seven days after his Spring Budget.
He is by no means the first Chancellor to beat a hasty retreat on Budget measures – in recent times Osborne, Darling and Brown have all had their U-turn moments.
By announcing this change of heart just before Prime Minister’s Question Time, Mr Hammond sought to wrong-foot the opposition. It also meant the issue won’t hang over the Prime Minister’s speech to the Conservative Party’s Spring Forum due to begin in Cardiff this Friday.
Lack of consultation
It was striking that even in his climb-down letter Mr Hammond continues to make a strong case for why the different treatment of employees and the self-employed needed reform. We agree, but unfortunately the lack of consultation and communication over this change as part of wider strategy made it vulnerable, as mentioned by a blog from our partners at the RSA.
While the continued abject failure to reform business rates is of more immediate concern to the small business community, this has sadly attracted little attention.
The Spring Budget offered just some short-term pain relief, but once again dodged the long-term issues with business rates in a digital economy. Similarly, the huge challenges small firms and freelancers face with the public sector IR35 changes, the VAT Flat Rate Scheme ‘limited cost trader’ scheme and dividend tax allowance cut have not caught the eye of the press nor many MPs.
Urgent reform needed
It’s unfortunate that the cack-handed way in which budgets continue to be produced has put at risk the urgently needed reform for the tax and welfare for the self-employed.
The planned changes to Class 4 NICs were relatively minor, progressive, and supported a broad range of policy experts. But, sadly, they were quickly framed as breaching some deeply foolish manifesto pledges that almost certainly were only ever meant to apply to employees.
In rowing back, Mr Hammond has now committed to further reviews of tax and benefits for the self-employed, while vowing not to touch NICs rates in this Parliament. The trouble is that much-needed support for the self-employed relating to sickness, parental leave, and much more depends on a reasoned discussion about what tax contribution will be made in return for such protections.
In their rage, it’s quite possible that the “no tax rise ever” brigade have set back the cause for reforms that help the poorest and most vulnerable self-employed workers. I sincerely hope not.