What is probably the fastest budget U turn in history has been announced today; the Chancellor has already withdrawn the proposed increases to Class 4 National Insurance. The tax lock act only covered Class 1 NIC’s, however, the Chancellors problems arose because the manifesto ruled out all NIC’s increases.
Initially in last week’s Spring Budget the Chancellor chose to break a 2015 election manifesto pledge with the announcement that National Insurance will increase for the self-employed by a full 2%. This move was to reduce the difference between the rate of NI paid by the employed and self-employed. The Chancellor then went on to state the increase reflected the ‘more equal pension entitlement and benefits’ self-employed people get now; conveniently choosing to ignore the comforts that self-employed people don’t get .i.e. holiday pay or sick pay.
In the face of sustained pressure from the profession, the press and backbench MPs on behalf of the self-employed, the Chancellor has therefore decided not to proceed with this increase, announcing this today in a letter to Tory MPs and a statement, ‘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, ‘ although the Chancellor is still sticking by his argument that the change would have made the tax system fairer.
So, for the time being the self-employed are safe from National Insurance change, but for how long this will last will remain to be seen.
The owner-managed businesses now seek a similar reversal to the reduction in the dividend allowance in days to come however this looks doubtful, with the Chancellor pre-empting this already in today’s press coverage.