About Turn!!! The Spring Budget and the U-turn
When Chancellor Philip Hammond announced the Spring Budget this month it is fair to say that the increase in NICs for the self-employed was unexpected. This announcement resulted in accusations that the Conservative Party had broken their manifesto pledge not to raise taxes.
Increase in NICs for self-employed
Why was this increase proposed?
Mr Hammond said there was a disparity between those who were employed and those who were self-employed; a disparity which ‘undermines the fairness of our tax system’. Whilst there was a ‘dramatic increase’ in the number of self-employed people, Mr Hammond said that ‘differences in tax treatment’ should not be the reason for people choosing to be self-employed.
What was the planned increase?
As per the Budget, Class 4 NICs for the self-employed were set to increase from 9% to 10% in April 2018 and 11% in April 2019.
The increases applied to earnings between £8,060 and £43,000. All Class 4 earnings above £43,000 would continue to be taxed at 2% while those below £8,060 would pay nothing. This change would have affected 2.5 million people, for whom the cost was to be around 60p a week.
Why the U-turn?
Facing backlash from Conservative backbenchers and criticisms from other politicians and the public, Mr Hammond was accused of breaking the Conservative election manifesto commitment not to put up National Insurance, income tax or VAT. A week after the Budget, the government announced that it would be scrapping the planned NICs increase. Mr Hammond commented that ‘it is very important both to [him] and to the prime minister that [they] are compliant not just with the letter, but also the spirit of the commitments that were made.’ The scrapped increase promoted a response from Labour leader Jeremy Corbyn stating that the U-turn showed the government was ‘in chaos’.
Impact of this U-turn
The planned increase in NICs was due to raise over £2bn by 2022 to pay for social care and business rate support. So the question now is, where will the funding come from to fill in this £2bn black hole? The answer is…we do not know. What we do know is that the void will not be filled from any direct tax increase. The government will no doubt have to dig deep meaning that the autumn budget will be much anticipated.
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Jigna Varsani, Solicitor
Please note that the information contained in this article was correct at the time of writing. There may have been updates to the law since the article was written, which may affect the information and advice given therein.