Theresa May's Budget U-turn over National Insurance hike prompts accusations of incompetence and recklessness

Government admits defeat amid anger at policy as Brexiteers plot coup to axe Hammond and dominate Cabinet

Joe Watts
Political Editor
Wednesday 15 March 2017 21:10 GMT
Chancellor Philip Hammond  and Prime Minister Theresa May listen to Shadow Chancellor John McDonnell speaking in the House of Commons
Chancellor Philip Hammond and Prime Minister Theresa May listen to Shadow Chancellor John McDonnell speaking in the House of Commons

Theresa May has suffered her worst day since becoming Prime Minister after a series of blunders, including a humiliating budget U-turn, saw her Government accused of chaotic incompetence and recklessness.

The Prime Minister was jeered in the House of Commons as she explained why she now wants to completely scrap a plan to hike taxes for the self-employed that she was doggedly defending just days ago.

The “safe hands” reputation of her Chancellor Philip Hammond was also sullied as he unveiled the U-turn, having denied in interviews at the weekend he would budge on the issue.

Relations between the pair were strained as Downing Street was forced to confirm Ms May had “full confidence” in her Chancellor, while Brexiteers who see Mr Hammond as a potential block to their ambitions appeared to use the mess to question his credibility.

As that fiasco unfolded, Brexit Secretary David Davis raised eyebrows by revealing he has done no assessment of the economic impact of leaving the EU without a deal, despite Ms May vowing to potentially do so. The Government’s own experts also slammed a plan to deny disability benefits to 160,000 people.

The day threatened to become a catastrophe after it then emerged that 12 police forces have passed files to the Crown Prosecution Service relating to Conservative election expenses.

The one saving grace for the Prime Minister was Labour leader Jeremy Corbyn’s failure to land a significant political blow on Ms May in the House of Commons, despite the abundance of easy targets.

Angus Robertson calls out May for a "screeching, embarrassing U-turn on National Insurance"

Government sources claimed the decision to finally scrap the Budget’s hike in National Insurance Contributions of millions of self-employed workers was taken at a meeting in Downing Street attended by Ms May and Mr Hammond at 8am this morning.

The meeting followed weekend finger-pointing and scrapping between aides of the two politicians, over who is to blame for the ill-fated NICs policy.

It also came after days of intense pressure from Tory MPs who feared getting skewered in their constituencies by voters angry that the Tory election manifesto had promised not to raise NICs – both the Prime Minister and Mr Hammond had vehemently argued the move did not breach the manifesto.

But then in a letter to Tory MPs, released 20 minutes before Prime Minister’s Questions, Mr Hammond said: “It is very important both to me and to the Prime Minister that we are compliant not just with the letter, but also the spirit of the commitments that were made.

“In the light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measure set out in the Budget.”

Ms May easily survived what should have been the toughest Commons grilling of her career as Mr Corbyn failed to embarrass her over the debacle.

Mr Hammond was given a tougher time by shadow Chancellor John McDonnell later on when he branded the whole episode “chaos”, “shocking and humiliating”.

The Conservative 2015 election manifesto clearly stated four times the Tories would not increase NICs once in power, in a move that may have helped convince millions to vote for the party.

Deflecting questions over whether the move breaks the promise last week, Ms May said that legislation published after the election made clear that only employed, and not self-employed workers, would be protected.

On Wednesday her spokesman answered “no”, when asked if the Prime Minister now accepted if the NICs rise broke her party’s manifesto pledge.

But Mr Hammond apparently diverged from his leader’s position when he told the Commons: “There is a gap between the specific tax locks that were legislated and the wording that was used in the manifesto.

“We have today accepted that the more expansive interpretation should be the one that prevails, and that is why I have made the statement that I have.”

Despite the difference, a Downing Street spokesman said Ms May had “full confidence” in the Chancellor and said his resignation had not been discussed.

But that did not stop Mr Hammond immediately becoming a target, with ‘Tory bible’ The Spectator suggesting he lacks “basic political competence”, while headlines elsewhere claimed his future hung in the balance.

Brexit backing Tory peer Lord Lamont said: “This was a bad error of judgment and should never have been proposed.

“But this sad affair raises questions of process and how such a decision came to be made in the first place.”

While many Tory MPs were relieved the Government was backing away from a potentially damaging tax rise, others were angry they had been sent out to defend the measure in the days before the U-turn.

Ms May had vowed to take the country out of the EU with or without a deal 

Liberal Democrat leader Tim Farron highlighted the £2bn black-hole the climb-down now leaves in the Chancellor’s financial plans, while SNP Westminster leader Angus Robertson described the move as a “screeching embarrassing U-turn”.

Head of Taxation at the Institute of Directors Stephen Herring said: “The whole National Insurance saga can only be described as chaotic.”

In his select committee appearance Mr Davis stunned MPs by admitting the Government has done no economic assessment of crashing out of the EU with “no deal”.

Even though Ms May has promised to take the country out of the EU without one if her terms are rejected by Parliament, Mr Davis said it would only be possible to assess the impact of such a move in “about a year’s time”, leading Labour MP Pat McFadden to point out: “Without an assessment, you have mortgaged the country’s economic future to a soundbite.”

Meanwhile, controversial plans to withhold the Personal Independence Payment from thousands of claimants with mental illnesses were slammed by the Government’s experts in the Social Security Advisory Committee, which called for the changes to be delayed.

The scandal around election expenses deepened as it emerged police had passed files to the CPS relating to the Conservative Party's battle bus campaign in the 2015 election, examining whether strict spending limits in target seats were breached.

Colchester MP Will Quince revealed he had been interviewed by police – the second Tory known to have been quizzed by officers investigating the matter.

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