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Hammond scraps hike to National Insurance

Chancellor Philip Hammond has announced the Government will not proceed with the controversial increase to National Insurance contributions in this Parliament.

In the Budget, the Chancellor announced the rate for Class 4 NICs would rise from 9 per cent to 10 per cent in April 2018, and to 11 per cent in 2019.

The BBC reports Hammond has admitted the increase broke the Conservatives’ manifesto pledge.

Last week Prime Minister Theresa May said while the self-employed did have an “unfair” tax advantage, legislation on the increase would not be put before MPs until at least the autumn.

Hammond will set out the rationale for the U-turn in a House of Commons statement later today.

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Comments

There are 15 comments at the moment, we would love to hear your opinion too.

  1. So employed people will be subsidising the flat rate pension then?

  2. It was a silly undertaking and a bad decsion. It was reversed or at least defined more carefully in the National Insurance Contributions (Rate Ceilings) Act 2015, when the cap on NICs increases was explicitly limited to class 1 employee NICs only. That was the time for whinging.
    The self employed have a hugely advantageous NIC position and this would have gone a little way to correct the imbalance – though not far enough

  3. When will these numpties understand that the self employed DO NOT have an unfair advantage at all. They don’t get sick pay, they don’t get unemployment pay, redundancy payments, pregnancy leave and a get worse pension. They take the risks. If there is no work, there is no pay. The chunter on about productivity, but if the employed were only half as productive as the self-employed we wouldn’t have a problem.

    May seems to live in a little world all on her own. One minute she bleats about the squeezed middle – the JAMS and then she kicks them in the nethers.

    • Harry, the big item is the state pension. In fact all other items funded by NICs are insignificant in comparison. Total state funding for redundancy for example is minimal. And some of your points are mis-leading, true the self-employed don’t get contribution based jobseekers’ allowance, but they can get means-tested JSA etc.

      There is no doubt the self-employed get less from the system, the question is whether the relative costs of the benefits they do/will get are proportionate to the vastly lower NICs they pay (across all classes of NICs). I believe it’s very likely the employed are increasingly subsidising the self-employed on NICs contributions/benefits, though admit I haven’t seen anything approaching a robust analysis.

  4. @ harry. Surely the point is the huge debt left by the appalling way Brown borrowed money to fund his jobs for votes campaign means that everybody has to pay more.

    • Couldn’t agree more. We are all far too highly taxed. The tax burden is the highest in 40 years That takes us back to the Labour governments of the 1070’s for heaven’s sake. Instead of the Government and the press crowing about how well we are doing why don’t the assess what progress has been made. Precious little. More debt, higher taxes, no wage growth. Inflation on the rise and no interest from cash savings. What a state of affairs. Chimpanzees in Westminster wouldn’t have done any worse.

    • Brown’s been gone 7 years – It’s this lot doubling the debt that’s the problem

  5. Perhaps the chancellor will plug the fiscal shortfall by targeting the large companies who now engage self employed individuals rather than employing them to avoid their E’er NI contributions and other employer responsibilities. Won’t even be backing this one each way!

  6. The other issue side stepped is the definition of self employed. As someone who works closely with the building trade on tax this was clearly defined in site employment terms as someone who is in full control of their earnings, can dictate which job they do and at what rate and have more than one source of employment rather than through an individual person or company. Otherwise you are not self employed but an employee trying to dodge tax and NIC. This was resolved at least 10 years ago in this industry why is it so hard to transfer to others. Also try actually getting JSA as self employed the terms are usually give up and become bankrupt, not like employees with redundancy pay, small holiday, choose another job when ready whilst fully supported by the state. I see no advantage for self employed at all.

  7. There is a substantial difference between those who work for large organisations and purport to be self-employed. This is quite simply the fault of HMRC who fail to tighten up on these scams (SJP and IT contractors who only work for one firm for example). The true self employed are the salt of the earth and deserve every encouragement. No recognition in these posts that they work the hardest and are by far the most productive.

  8. Have we al forgotten, the original purpose of class 4 NIC. Was to bring the self employed in line with the employed and class 4 as intended to fund a SERPS style pension for the self employed. It never happened, so presumably those contributions will be returned?

    • In the interests of fairness you need to recognise NICs funds, among other things, part of the NHS costs. Yet I don’t see people being asked on the stretcher if they are self-employed, and then being given a proportionately inferior / more limited treatment.

      Not practical or desirable.

      It’s very likely, because of state pension and NHS costs that the self-employed are getting a subsidy through NICs, though of course the PAYGO mechanism can only make that a best guess, or “projection”.

      Aside from the whole NICs debate, fundamentally tax arbitrage between different statuses for the same economic activity should be avoided

  9. Well said Kevin

  10. @Harry Katz – spot on.

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