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Budget 2017: Theresa May defends National Insurance hike after Downing Street refuses four times to rule out U-turn

Tory backbench revolt against tax raid grows as one MP tells ministers: 'It is not acceptable and it cannot be allowed to proceed'

Rob Merrick
Deputy Political Editor
Thursday 09 March 2017 13:44 GMT
Theresa May laughing in the Commons chamber before the Budget yesterday - but her happy mood did not last
Theresa May laughing in the Commons chamber before the Budget yesterday - but her happy mood did not last (Reuters)

Theresa May has defended a rise in National Insurance contributions for the self-employed at a summit in Brussels, saying the increases made the tax system "fairer".

But the backing for the proposal came after Number 10 refused four times to rule out a review of the controversial plan, which had raised suspicions of a U-turn.

Ms May said the full effects of the reforms would be set out in a paper this summer, insisting the changes would make the system “fairer” and “more progressive”.

"This is a change that leaves lower-paid self-employed workers better off, it's accompanied by more rights and protections for self-employed workers,” she added.

Earlier, her spokesman said the Prime Minister “agreed” with her Chancellor, Philip Hammond, that the measure was fair and necessary to close a tax loophole.

However, he pointedly refused to rule out re-opening the Budget, just one day after it was delivered – after at least 11 Conservative MPs called for an urgent rethink.

Asked to state there would definitely be no review, the spokesman replied – repeatedly – by saying: “The point of this Budget is to address an unfairness that has existed for some time.”

The fudge came as it emerged that a separate Bill will be needed to push through the increases in NI, potentially making it easier for Tory rebels to defeat them.

The measure will not be part of the Finance Bill, which will enact the Budget, which is more difficult for backbenchers to amend – let alone vote against.

Asked by The Independent if the Prime Minister was concerned about a defeat, her spokesman replied: “In terms of what will happen with the legislation, clearly I’m not going to speculate.”

Meanwhile, Iain Duncan Smith became the most high-profile Conservative MP to say the Budget announcement broke an election commitment.

The 2015 Conservative manifesto explicitly ruled out rises in National Insurance, VAT and income tax during the lifetime of the current Parliament.

Budget 2017: Seven key points

And David Cameron took to the road, repeatedly promising to stand by the pledge – and contrasting it with the “jobs tax” which he claimed a Labour government was planning.

“I think there is always a problem if you make an absolute pledge at the time of an election and then you subsequently you don’t [keep it],” Mr Duncan Smith said.

“We all saw what happened to President Bush senior, “read my lips”, so some of us were slightly concerned at the time about making pledges that lock you in.”

To add to No.10’s dilemma, Lord Tebbit told the London Evening Standard: “It’s a bit of a dog’s dinner. I think we need to encourage people to be self-employed rather than discourage them.

“I don’t mind dealing with rich lawyers or wealthy people who take their pay through fake companies to avoid tax. But the local plumber is not in either category.”

And Conservative MP Stephen McPartland – a former opponent of tax credits cuts – told the BBC: “It is not acceptable and it cannot be allowed to proceed.”

Downing Street’s possible wavering came after the Chancellor refused to bow to demands from his own MPs for a U-turn, saying: “We have made a decision here, to make the National Insurance system a little bit fairer.”

The Budget announcement will see the nine per cent rate of Class 4 NI contributions go up to ten per cent in April 2018 and to 11 per cent a year later.

According to the Treasury, 1.6m self-employed people will pay £240 on average more every year – but no-one earning less than £16,200 will be worse off.

Mr Hammond argued the manifesto pledge had not been broken, because it only applied to NI contributions paid by employers and employees – not to the Class 4 type levied on the self-employed.

This became clear when Parliament later passed a law to enact the manifesto commitment, he said.

The measure will only raise £145m a year in the short-term, but the Treasury fears it will lose billions in future unless it acts, as self-employment grows.

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