Government in U-turn over tax cut hailed as boost for self-employed

Move will save around £200m, but the Treasury insisted the delay was to avoid 'unintended consequences for the lowest paid'

Rob Merrick
Deputy Political Editor
Thursday 02 November 2017 20:01
Comments
Philip Hammond was forced to scrap one tax change affecting the self-employed last year - and has now shelved another
Philip Hammond was forced to scrap one tax change affecting the self-employed last year - and has now shelved another

A tax cut hailed as a boost for Britain’s army of self-employed people has been shelved, in another Government U-turn.

Class 2 National Insurance Contributions (NICs) were due to be scrapped next April, but will now stay in place until 12 months later, the Treasury said.

The move is expected to save the Chancellor, Philip Hammond, around £200m, just weeks before a crucial Budget and as he tries to plug a yawning financial “black hole”.

However, the Treasury insisted the delay was to avoid “unintended consequences for the lowest paid”, by allowing further consultation to take place.

Mr Hammond has been under pressure to step back from a confrontation with the lowest-earning self-employed who would lose out from the shake-up.

More than 3m workers would gain more than £130 a year – but tens of thousands of people earning under £6,000 a year faced a fourfold hike in the cost of their pension contributions.

A statement to MPs insisted the Government remained “committed to abolishing Class 2 NICs to simplify the system”.

Nevertheless, the delay is certain to spark speculation that the U-turn will become permanent, after Mr Hammond was forced to axe other national insurance hikes on the self-employed last year.

Former Chancellor George Osborne, who announced the change in 2016, tweeted his displeasure, saying: “Not sure why the Government have delayed this tax cut for self-employed people.”

And Labour claimed the announcement “highlights the chaos that there is at the centre of government right now”

“Clearly these proposals had not been thoroughly thought through before they were announced,” said Peter Dowd, the Shadow Treasury Chief Secretary.

"The government needs to makes sure that those currently paying Class 2 NICs, including many low-earning self-employed people, are not hit hard as a result of their abolition and replacement."

When Mr Osborne announced the abolition of Class 2 NICS, in March 2016, it was promoted as the death of an “outdated levy”, paid at a flat rate unrelated to profits

The system requires those who work for themselves to fill out forms and pay around £2.60 a week on average.

Abolition would benefit self-employed workers earning between £6,025 and £8,164, who would automatically get the pension rights from Class 4 contributions, without having to pay more.

But critics protested that those earning under £6,000 a year would see their pension contributions quadruple, from £2.85 to £14.45 a week in order to later receive the full state pension.

In a statement to MPs, Treasury minister Andrew Jones said a National Insurance Contributions (NICs) Bill would now be brought forward in 2018, delaying implementation until April 2019.

He said: “The Government has decided to implement a one year delay to allow time to engage with interested parties and parliamentarians with concerns relating to the impact of the abolition of Class 2 NICs on self-employed individuals with low profits.

“The Government has committed to abolishing Class 2 NICs to simplify the system, so it is therefore right to take the time to ensure that there are no unintended consequences for the lowest paid.”

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