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Hammond forced into budget tax climbdown


U-turn: British Chancellor Philip Hammond. Photo: AFP/Getty

U-turn: British Chancellor Philip Hammond. Photo: AFP/Getty

AFP/Getty Images

U-turn: British Chancellor Philip Hammond. Photo: AFP/Getty

British Chancellor of the Exchequer Philip Hammond has been forced into an embarrassing budget U-turn in which he has scrapped a plan to increase tax on the self-employed.

Mr Hammond was accused of breaking a manifesto pledge not to hike national insurance contributions, made by the Tories before they won the 2015 election, when he announced the proposal in the budget on March 8. Conservatives said the move was a tax on entrepreneurs, as well as a breach of voters' trust.

With enough MPs voicing displeasure to threaten Prime Minister Theresa May's slender majority of 17, the government backed down a week after the measure was first unveiled.

"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," Mr Hammond said in a letter to Conservative members of parliament yesterday.

While the U-turn will pacify backbench Tory MPs, it leaves Mr Hammond with dented credibility and a hole in his accounts that he must now fill. The proposed increase in the Class 4 NIC rate to 11pc from 9pc by 2019 was forecast to raise about £2.1bn (€2.4bn) over four years, making it a key part of his plan to reduce the budget deficit. The first 1pc increase was due to take effect next year.

"While this could undermine Mr Hammond's authority, by doing it quickly it shows he's acknowledged the misjudgment and acted on it," Tim Bale, professor of politics at Queen Mary University of London, said.

Mr Hammond insists the cost of the changes will be funded by other measures to be announced in the autumn budget.

He had received strong backing for the move from the Institute for Fiscal Studies, which said those earning less than £15,600 (€17,917) would be better off because of the planned abolition of Class 2 national insurance contributions, a flat-rate levy for those with low earnings.

Less than half-an-hour after the letter was made public, Mrs May faced lawmakers and told them that the greater number of people who are self-employed posed a problem that required a solution and that she would await the completion of a government tax review before acting.

"The trend towards greater self-employment does create a structural issue in the tax base, one which we want to act to address," she said. "We do want to ensure fairness in the tax system," Mrs May said.

Mr Hammond explained the decision to back down in a statement to parliament yesterday. Challenged by opposition Labour MP Rachel Reeves, he denied the move had been ordered by Mrs May.

Irish Independent