In Depth

Hammond's 'humiliating' NI U-turn: How the papers reacted

Chancellor comes under attack, but Theresa May will retain her reputation for 'steadfastness and resolution'

Philip Hammond's climbdown on raising national insurance for the self-employed is the "most humiliating Budget U-turn in a generation", according to the normally Tory-leaning Daily Telegraph.

Despite continuing to defend the increase in Class 4 national insurance contributions (Nics) as "fair", the Chancellor has had to admit the measure breaches the Conservative Party's 2015 general election manifesto - and the paper claims it has left him "fighting for his career".

Larry Elliott in The Guardian says the problem is that the measure was always bad politics and the U-turn has become a "political disaster".

There was "no real need" for a controversial increase that, at £2bn over the course of this parliament, will bring comparatively little funding, he argues.

That's the sort of figure that could easily be covered by "rounding adjustments in the forecasts for the economy", adds John Rentoul in The Independent.

Elliott adds that Hammond has consequently been forced to back down on a change backed by think-tanks such as Resolution Foundation and the Institute for Fiscal Studies and has tied his hands ahead of the Autumn Budget.

At that time, a report will be in on the wider issues concerning the current surge in self-employment which will afford him the "chance to offer some sweeteners for the self-employed in the form of better employment rights".

Rentoul says, however, that the politics of the U-turn might be powerful in one important respect: it keeps Theresa May's "reputation for steadiness and resolution intact".

The Telegraph's report this morning claims the Prime Minister told her Chancellor: "We are reversing this - I don't care how bad it is for you".

There are those, though, such as The Times's Patrick Hosking, who say Hammond should have "kept faith".                 

Self-employment is on the rise among white collar professionals, who now get the "same pension and other rights" as normal workers but are paying lower Nics for the privilege, argues the journalist, adding: "Hammond's change of heart may help to restore faith in hastily made manifesto promises, but it will damage the public finances."

Hammond's NI U-turn leaves £2bn Budget black hole 

15 March

Philip Hammond has executed "one of the most significant Budget U-turns in modern times", says the Daily Telegraph.

In a letter to Tory MPs today, the Chancellor said the government will not carry out its planned two per cent rise in national insurance contributions (Nics) for the self-employed, which he detailed last week.

That leaves Spreadsheet Phil" with a £2bn hole in his calculations, which the Telegraph says he intends to fill with "new measures in his Autumn Budget".

Hammond continued to defend his "fair" reforms, which would have seen Class 4 Nics for the self-employed rise to 11 per cent, one per cent below the employed rate, but he acknowledged the rise breached the "spirit" of the 2015 election manifesto.

Critics said it did a good deal more, as the Tories had pledged on four occasions there would be "no increases in VAT, income tax or national insurance".

While legislation passed in the summer of 2015 to enact that pledge referred only to Class 1 Nics, paid by employees, as many as 100 MPs were said to be willing to rebel and defeat the government on the rise.

Hammond's U-turn will no doubt cause disquiet from Tory MPs who had defended the measure publicly after receiving assurances he would not change his mind.

Matthew Taylor, the former Labour adviser undertaking a review for the government into the gig economy and rise in self-employment, said the issue showed the problem with making blanket pledges in the first instance.

Jeremy Corbyn branded the U-turn "chaos" at PMQs this afternoon and said the increase was always unfair for low-paid self-employed.

Budget 2017: Will May U-turn on national insurance hike?

10 March

Theresa May has delayed a key vote to bring into being a controversial change to national insurance contributions (Nics) for the self-employed, as a Tory backbench rebellion grows into a full-on crisis.

"Government officials said there was 'no rush' to bring forward legislation to implement the increase in the Class 4 Nic rate and Mrs May said a bill would not be published until the autumn," says the Financial Times.

So has the measure been kicked into the long grass - and what is all the fuss about?

What does national insurance pay for?

Nics, a direct method of taxation to pay for services such as the NHS, are used to build up an entitlement to state benefits including the pension, maternity allowance and jobseeker's allowance.

What is the current national insurance system?

In the tax year 2017/18, self-employed workers will pay two types of NI. The first is a Class 2 Nic at £2.85 a week on profits between £6,025 and £8,164.

If they earn more than £8,164, the additional sum is subject to Class 4 Nics at nine per cent. Profits above £45,000 are taxed at two per cent.

In contrast, employed workers are subject to Class 1 Nics and pay more, at 12 per cent on earnings between £8,164 and £45,000. Earnings above £45,000 are taxed at two per cent, the same as for the self-employed.

What is changing?

In his Budget, Chancellor Phillip Hammond stated that this difference in how much NI you pay depending on your employment status "undermines the fairness of the tax system".

So, while nothing will change for employed workers, the self-employed are set to pay more. From April 2018 Class 4 Nics will rise by one percentage point, before rising again in April 2019 to settle at 11 per cent. 

At the same time Class 2 Nics will be abolished next April so that no-one earning less than £8,164 will pay National Insurance.

The change is expected to result in 2.6 million self-employed people being better off and 2.2 million worse off. Employed workers will still pay slightly more than most self-employed workers. 

Why do the self-employed pay less?

Historically, the self-employed have paid less NI because they didn’t have access to the same level of state benefits as employed workers.

For example, under the old two-tier state pension system self-employed workers couldn’t access the additional pension so received less. However, under the new single-tier state pension the self-employed get an increased state pension in line with what employed workers receive.

What's the problem?

By increasing National Insurance for the self-employed Mr Hammond has broken a key pledge from the Conservative party’s election manifesto: "We can commit to no increases in VAT, income tax or national insurance."

Hammond has tried to wriggle out of the accusation by saying that the small print of legislation passed after the Conservative party's election win stated that the self-employed were not included in the pledge, which referred only to Class 1 Nics.

During an appearance on Sky News Mr Hammond was asked if the manifesto pledge had been a lie. His response was that he was only making the self-employed "pay a little more" and not "huge amounts". He added that the move was only "right and fair".

"Britain’s circumstances have moved on. We are now facing the challenge of leaving the European Union, of building a global Britain to exploit the opportunities in the future that this country can enjoy, and we need to invest to do that," Hammond told Good Morning Britain.

"I’ve had to ask the self-employed to pay a little more national insurance in order to make a fair contribution for the services that they receive from the Government."

However, several Tory MPs have criticised the change and have said it needs to be given more consideration before it is introduced.

They're not only worried about the manifesto pledge being broken, but also that the reform is being portrayed as an attack on self-employed strivers the party has vowed to support. It's also worth noting that as the "gig economy" grows, there are many low-paid people who are technically self-employed.

Speaking on BBC Radio 4 Anne-Marie Trevelyan MP said: "We need to halt this particular decision now. I think we need to put this on hold so we can have a proper review."

The Labour party has also stated that it will oppose the tax increase. With 12 months to go until the tax rise comes into affect there will be plenty of time for a battle.

Budget 2017: All of Philip Hammond's key announcements

8 March

Philip Hammond began his Budget speech today by citing greatly improved forecasts on growth and borrowing - but he pledged to stay the course on austerity.

The Chancellor started out by saying he was reporting on an economy that has "continued to confound the commentators with robust growth".

But he also drew parallels with Norman Lamont's spring Budget of 1993, which was similarly billed as the last of its time - and which also saw the UK ranked among the fastest growing in the G7 group of advanced nations but pushing on nonetheless with spending restraint.

In fact, he signalled tax increases including a two per cent increase in self-employed national insurance contributions over the coming two years.

Economic data

Hammond said the Office for Budget Responsibility had upgraded growth in the year ahead from 1.4 per cent, to two per cent. It is set to fall to 1.6 per cent in 2018/2019 and will only return to two per cent by 2020/2021.

This means the Treasury still sees a negative Brexit effect coming down the line, but just taking longer than had been anticipated last summer.

Government borrowing is to fall substantially in short-term and will be £16.4bn lower than forecast this year. Overall the government will have "£26bn of headroom against new fiscal rules" by the end of this parliament.

Tax rises

This "headroom" will, however, be used to buttress its Brexit buffer - and new tax measures will be introduced to fund any giveaways.

The most headline-grabbing of these is an increase in national insurance contributions paid by self-employed people, by one per cent this April and a further one per cent in 2019.

There will also be a reduction in the dividend tax allowance, from £5,000 to £2,000, by April 2018, which Hammond said was designed to counter an increase in individuals setting up as companies in order to cut their tax bills.

Social care 

Among the key spending commitments that will be funded by these increases is new money for social care, amounting to £2bn in grant funding for local councils over the coming three years - £1bn of which will be availble in the coming year.

That's less than the £1.3bn that had been anticipated - and the £2.6bn black hole identified by experts.

More broadly, there will be a review set up to identify authorities which are struggling, who will be helped to do more to integrate with local NHS services. A green paper will also follow, setting out longer-term plans on social care funding.

The NHS

There was also new money made available for the wider health service, including billions in new funding to come in the Autumn to fund capital investment projects as part of local NHS trusts' "sustainability and transformation plans".

Hammond added that £325m of that is being put aside in the months before this year's second Budget, to provide funding or those trusts that are already in a position to move forward.

A £100m fund will also be set up to fund triage projects in Accident and Emergency departments across the NHS England, to relieve pressure on them next winter after a major crisis this past winter that saw waiting times hit record levels.

Business and productivity

Elsewhere there were expected measures to soften the blow of business rates changes coming next month for companies facing hefty increases, including a cap in increase of £50 per month for smaller firms, a £1,000 a year discount for most pubs, and a £300m fund for local authorites to hand out "discretionary relief".

This will address concerns among businesses concentrated in the south-east that are facing increases in the coming five years of up to several hundred per cent.

There was also £800m of spending announced, coming from a £23bn infrastructure spending fund announced at the Autumn Statement in November, to provide funding for a range of technological initiatives, including a hub for 5G connectivity and ultra-fast broadband.

Schools and education

There were also key funding pledges for schools, including to enable the establishment of 110 new free schools on top of the 500 already planned. 

Free school transport was also extended to all children receiving free school meals at selective schools, such as grammars.

To counter challenges that funding is being made available to a minority of students at the expense of the majority, Hammond said he will boost spending to improve existing school buildings by £216m over the next three years.

There will also be an additional £100m set aside to fund training for 16 to 19 year old school leavers.

Budget 2017: What can we expect from 'Spreadsheet Phil'?

8 March

Philip Hammond will today deliver his first spring Budget since moving into No 11 Downing Street last summer – but it will also be his last.

In his Autumn Statement last November, the Chancellor announced he will be moving to one major package of fiscal policy each year, to be delivered in the autumn.

So what can we expect?

According to the BBC, Hammond will deliver an "upbeat" assessment of the UK economy, which has outperformed the mostly pessimistic predictions for what would happen after the vote for Brexit last June.

The Organisation for Economic Cooperation and Development this morning raised its projections for UK growth in 2017 to 1.6 per cent, its second upgrade in four months, says the Daily Telegraph.       

More importantly for the Chancellor, the Office for Budget Responsibility is expected to upgrade its forecast for this year's growth to 1.9 per cent, says Sky News.                

Thanks to faster economic expansion and increased self-employment tax revenues, borrowing will be around £12bn lower for 2016 and cumulatively £29bn lower in the years to 2019.

However, despite government promises to pump as much as £1.3bn into the crisis-hit social care sector, to soften the blow of business rates and provide up to £1bn of new education funding, Hammond has indicated the Budget will be revenue neutral.

Instead, "Spreadsheet Phil", as the Chancellor has been nicknamed, is setting aside money to cope with any future Brexit shock, boosting the UK's war chest to £60bn.

All of which implies we could see some tax rises. Speculation is rife that self-employment National Insurance contributions will rise to 12 per cent, in line with PAYE employees.

There could also be higher duties on alcohol, although drivers and smokers are expected to escape unscathed.

Join us for live coverage of the speech, from 12.30pm.

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