No rise in National Insurance for the self employed

I am pleased the Chancellor has changed his mind on National Insurance. It is true the previous Chancellor defined the Manifesto promise as relating to NI for just  the employed when he legislated to implement the promise, but there was no such limitation in the Manifesto or in the election speeches and broadcasts to warn the self employed they were not covered. It is always a good idea to keep the spirit and the letter of promises made.

I did speak in favour of not taxing the self employed and small business more, and put in representations from constituents against the Budget proposal. Removing this tax increase removes £325 m extra tax from 2018-19, and around £600 m in each of the next two years. I see no need to replace this “lost” revenue, as I expect the economy to grow a little faster than the official forecasts, which will generate more extra revenue than this policy change. Fortunately the sums involved are  small against a total revenue of around £800 bn annually  in the relevant years, so this item is under 0.1% of the total.

 

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55 Comments

  1. John E
    Posted March 15, 2017 at 4:07 pm | Permalink

    It was never any defence to say the legislation was different to the manifesto promise. You can’t promise one thing before the election and then legislate for something different afterwards and claim to be keeping promises.

    The important question remains – how and when are we going to get a real Conservative Chancellor with some vision? Hammond clearly brings little to the role by way of independent or radical thinking.

    • Lifelogic
      Posted March 16, 2017 at 7:33 am | Permalink

      Indeed but T May has no vision either. The way ministers went round studios pretending black was white was just pathetic, no one was convinced. We now hear that the promise, in the manifesto, was a foolish one to make. No not at all, taxes are far to high anyway just cut out the waste, halve the size of the state and get rid the many things government should not even be doing (and is doing very badly).

      Why is remuneration in the state sector (with pensions included) still 50% higher than the private sector?

      • Lifelogic
        Posted March 16, 2017 at 8:48 am | Permalink

        It seem that the hugely misguided NI ratting was just a “crease” to be ironed out of the budget. Lots of other ones, the new Inheritance Probate Tax, the Sugar tax, the dividend tax, the ratting on the £1M IHT thresholds per person …. Lots more ironing needed. But do May and Hammond know how to plug in and use a steam iron?

  2. Bob
    Posted March 15, 2017 at 5:09 pm | Permalink

    a small cut to the foreign aid budget would take care of it.

  3. Bert Young
    Posted March 15, 2017 at 5:21 pm | Permalink

    Why does Hammond / the Treasury still want to cover the loss ( of the self employed NI contributions ) ? . His about turn is understandable , equally , he should do the same on the increased death duty tax and on the extra dividend tax . He is wrong and he should go .

  4. The Budget-negative
    Posted March 15, 2017 at 5:22 pm | Permalink

    The Chancellor like the last one will be known for what he thought he would do but didn’t.

  5. Chris
    Posted March 15, 2017 at 5:25 pm | Permalink

    What about a U turn on the stealth death tax? That is a tax of a Labour government, not Tory. I believe Philip Hammond should be replaced quickly, and someone who has financial competence, common sense, and a single minded dedication to Brexit, brought in.

    • Lifelogic
      Posted March 16, 2017 at 5:43 pm | Permalink

      What about also keeping Osborne IHT threshold promise of 8 odd years back. In the USA it is $5.45 Million each here just a pathetic £325k.

  6. Chris
    Posted March 15, 2017 at 5:26 pm | Permalink

    Mr Redwood, would you like to try the CAPTCHA with the mountains questions?

  7. alan jutson
    Posted March 15, 2017 at 5:33 pm | Permalink

    A correct and common-sense decision to reverse the NIC’s statement made in the Budget.

    All we now need is further common-sense to be used with regards to cancelling the Business and Probate Rates farce, and the Chancellor will be seen as being a rather more sensible Conservative than he looks at present.

    If he wants to make up the money, then I suggest he takes it out of the bloated Foreign Aid Budget.
    Such manufactured Aid schemes have not helped any real people in need at all, but mainly enriched those companies who have been managing such schemes.

  8. eeyore
    Posted March 15, 2017 at 5:42 pm | Permalink

    You’re pleased the Chancellor changed his mind; I’m pleased when any government cares more about its honour than its image. Of course, the 14 Tory MPs (or were there more?) who nudged it in the direction of virtue may have helped a little.

    Mr Hammond’s justification for his unfortunate proposal was fairness, which, being a practical chap with possibly not much time for philosophising, he seems to have confused with equality.

    Anyway, he has now discovered something about both those slippery concepts, as well as something about HM Treasury and its blandishments. He’ll also have learned what not to do and that, as the Duke of Wellington said, is always something.

  9. zorro
    Posted March 15, 2017 at 5:45 pm | Permalink

    Indeed, you correctly state that the supposed ‘lost revenue’ is roughly 0.1% of annual state revenue which will easily be recovered from the extra growth which has been deliberately deflated by the remainers for political purposes.

    The problem is with the Chancellor’s actions in thinking that this was a sensible idea in the first place whilst adding eliptically that a change of circs (Brexit bien sur) had caused the increase. This along with other borderline decsions do not inspire confidence in smooth negotiations. Fortunately, i suspect that force majeure will pull us out of the EU well before two years as our exports are growing far more quickly to non-EU countries and we will want to focus more on those opportunities rather than totally shackle ouselves to a non-growth organisation (relatively speaking)…..

    The EU is like an arthritic dinosaur incapable of quick, flexible responses to dynamic political/economic circumstances and will not be able to respond to our timetable.

    zorro

  10. acorn
    Posted March 15, 2017 at 6:22 pm | Permalink

    Makes sense JR, score it as a vote winner. It is a nightmare for HMRC, trying to get any variety of tax out of the self-employed / micro enterprises (less than 10 employees). We still get the retail service outfits that trades six days a week; but, their paperwork only shows five days a week.

    • libertarian
      Posted March 16, 2017 at 7:12 pm | Permalink

      acorn

      Really? Do you have much evidence for that assertion? When you say we… are you admitting to being an employee of HMRC?

  11. John O'Leary
    Posted March 15, 2017 at 6:22 pm | Permalink

    and they accused George Osborne of presiding over an ominshambles!

  12. getahead
    Posted March 15, 2017 at 7:21 pm | Permalink

    Now can you please get dividend tax-relief for pensioners restored to £5,000, John?

    • Lifelogic
      Posted March 15, 2017 at 9:52 pm | Permalink

      Abolish dividend tax the company has already paid 20% on it and you pay more is you are a higher rate tax payer already. Cut out all the bloated endless government waste instead. Huge amount of fax to be cut there is just no leadership.

      • Lifelogic
        Posted March 16, 2017 at 8:02 am | Permalink

        Fat not fax.

  13. G Wilson
    Posted March 15, 2017 at 7:21 pm | Permalink

    Shame no U-turn on the abusive increase in tax on dividends.

    Arron Banks must be counting the votes already.

  14. Lifelogic
    Posted March 15, 2017 at 7:32 pm | Permalink

    He needs to go further it was a huge political and economic mistake as I spotted the moment he announced it. Make it clear that Tory Manifestos are in future to be fully trusted. Keep the £1 IHT threshold (each) promise made many years ago and get rid of the new probate IHT tax II.

    Tax rates are absurdly high already cut the waste, cut the green crap, cut the red tape, cut the taxes grow the economy and attract more money and investment in.

  15. Jack
    Posted March 15, 2017 at 7:46 pm | Permalink

    Exactly, the sums involved are tiny. The budget deficit is still far too small.

    How about cutting payroll taxes massively for employees, instead of hiking NIC for self-employed as was intended? We desperately need the government to be creating more net money (net financial assets) to spur demand and lead to unprecedented real GDP growth.

    If a NIC hike for self-employed was justified on basis of it not being equal with NICs of employees, how about just cut NICs for employees? That said, we have way more fiscal space (real resource capacity) to cut NICs much further than that, and the treasury should do so ASAP.

  16. Lifelogic
    Posted March 15, 2017 at 9:03 pm | Permalink

    If the government cannot be run with:-

    Income tax at up to 45% income 20% VAT, NI 13.8%+12% = 25.8%, fuel duty circa 70%, alcohol duty circa 60%, stamp duty 15%, IPT 12%, VED, council tax £2000, enveloped dwelling tax, bus lane fines, late filing fines, hatch junction fines, litter fines, television tax, business rates (and then when you die a further 40% inheritance tax plus the new probate tax on top) then it is very clear that government is totally incompetent, fraudulent and further money is the last thing it needs.

    Rather like the dire NHS, the second rate schools and the appalling social care, more money will do nothing with the current structures.

    • Lifelogic
      Posted March 15, 2017 at 9:10 pm | Permalink

      Plus of course corporation tax 20% and capital gains 28% (not even real ones) and the new dividend tax. Just how much blood do these fools want before they kill the golden goose they feed off?

    • libertarian
      Posted March 16, 2017 at 7:16 pm | Permalink

      LL

      Amen to that, you are totally right. Its about time that one single politician stood up to be counted and asked why so much taxpayers money is wasted by government on unnecessary and incompetent projects, meddling in things that dont concern them etc

      If we had a limited set of government services they money raised already could double the budgets of key core services

  17. Stephen Almond
    Posted March 15, 2017 at 9:07 pm | Permalink

    Yes. We employees using PAYE will continue to take up the slack and subsidise the self-employed.

    • Lifelogic
      Posted March 15, 2017 at 9:56 pm | Permalink

      Not true at all. They get no sick pay, unemployment benefit or maternity pay. Taxes are far too high already for everyone.

      • a-tracy
        Posted March 16, 2017 at 10:28 am | Permalink

        I’m sorry Lifelogic but I’m just not going to allow this misconception to carry on, the employee’s do not get sick pay paid by the State it is now paid on top of Employer’s NI by their Employer no recharge even for Micros. The maternity pay the self-employed get maternity allowance for 39 weeks by paying their class 2 NI at just £2.80pw (from 2018 they won’t even have to pay that which I don’t agree with) the employees contribute a lot more for that in their 3% alone not including the 13.8% their employer pays on their behalf. I will look into unemployment benefit but I wonder if the self-employed get social security instead of JSA plus housing benefit and all of the other myriad of benefits.

        In addition, Holiday pay is not paid by the national insurance fund it is paid by the employer and if you employ yourself then you cover it.

        • libertarian
          Posted March 17, 2017 at 5:19 pm | Permalink

          a-tracy

          You keep banging on about this whilst completely missing the point. Let me try to explain

          Yes the employer pays sick pay etc

          A self employed person is “the employer” if they are sick, they can’t work to earn money to pay themselves sick pay. Therefore they have no pay. THAT is the issue

        • David Price
          Posted March 18, 2017 at 4:27 am | Permalink

          @a-tracy
          Employers can and do pay higher than the statutory allowances for maternity, paternity leave to compensate actual loss of earnings. A self-employed person does not have that benefit.

          Statutory redundancy is paid for by the government (form RP1) if the employer is unable to is not available to the self employed. They also pay statutory notice pay (form RP2) as well as holiday pay, unpaid pension contributions and a basic award for unfair dismissal.

          To save you time it is the Redundancy Payment Directorate/Office of the Insolvency Service which covers these payments, I know because I was forced to take that route when made redundant by a company in administration.

          See here – https://www.gov.uk/your-rights-if-your-employer-is-insolvent/claiming-money-owed-to-you

          The politicians, civil servants and their useful friends are making the self employed out as the villains who complain of the loss of a few pence. Yet these same people have done nothing about the salary sacrifice loophole used by employers and employees to specifically avoid (see the 2016 Autumn statement) paying NI and income tax which makes a far bigger hole in government revenue.

      • John
        Posted March 16, 2017 at 5:41 pm | Permalink

        The Self Employed got an extra £35 per week added to their State Pension and no extra cost, that’s worth over £50,000. This rise was a tiny cost to those on the higher earnings bracket. I believe it was around £250 pa they were to pay?

        We will come back to this issue as we need to. The tax base is reducing ad it needs debating.

        • libertarian
          Posted March 17, 2017 at 5:21 pm | Permalink

          John

          Try adding in all the other taxes paid by the self employed that aren’t paid by PAYE people

        • APL
          Posted March 18, 2017 at 9:06 am | Permalink

          John: “The Self Employed got an extra £35 per week added to their State Pension and no extra cost, that’s worth over £50,000.”

          The value of which will be entirely destroyed by inflation if the self employed individual has to work another ten or fifteen years.

    • alan jutson
      Posted March 15, 2017 at 10:13 pm | Permalink

      Stephen

      Clearly you have never been self employed, or run your own business, or employed anyone else, or you would not make such silly statements.

      Whilst some people choose to be self employed others are virtually forced into it by circumstance, if you think it is such a great way to earn riches why not simply try it yourself.

    • libertarian
      Posted March 16, 2017 at 7:22 pm | Permalink

      Stephen Almond

      Oh really, tell you what chap I’ll swap my tax bill for yours. Come back to me when you also pay business rates, SDLT, BID levy, mandatory insurance premiums tax, VAT,when you have to spend 3 hours per week at your own cost filling in government forms and collecting money on behalf of the government.

      Oh and the day you pay your tax in advance of earning the money as self employed people do you may have some kind of argument until then you haven’t taken up any slack, you haven’t provided any benefit to society and you haven’t created anything. If it wasn’t for the self employed you would have a wage to pay NI on.

      Silly comment from someone who clearly has never made any attempt to run a business

  18. Sir Joe Soap
    Posted March 15, 2017 at 9:17 pm | Permalink

    I think that the fact that this was proposed in the first place shows that this cabinet is a Cameron-lite one. We have David Gauke and his ilk defending this plan to the hilt- now these people look daft and can basically be knocked over at will in the future.

    Can’t you apply?

    • Lifelogic
      Posted March 15, 2017 at 10:00 pm | Permalink

      Indeed these Gauke type of fools think that if you say black is white enough times the public will swallow it, they won’t. They have had enough of endless tax increases and dire public services.

  19. Peter VAN LEEUWEN
    Posted March 15, 2017 at 9:24 pm | Permalink

    Off topic insertion:
    Dutch election results.
    pro-Nexit parties: 14%
    pro-EU parties: 71%
    Critical pro-EU: 15%
    (possible game changers: Brexit, Trump, Erdogan)
    Bye bye, no further comments from me.

    • Chris
      Posted March 15, 2017 at 10:09 pm | Permalink

      Rutte is projected to have lost 10 seats (down from 41 last election). That is very significant and anyone ignoring that is foolish. That is the real message that you seem to fail to get.

      • rose
        Posted March 16, 2017 at 1:54 am | Permalink

        I expect that is because the people have been deeply shocked, as I have been, at Mr Rutte’s moslem travel ban and the way it was implemented.

        (We aren’t even allowed water cannon in London, however out of hand things get.)

      • Jerry
        Posted March 16, 2017 at 7:36 am | Permalink

        @Chris; A vacuous point, unless you specify to whom the seats were lost, even more so were governing coalitions are the norm or a legal requirement.

      • hefner
        Posted March 16, 2017 at 9:56 am | Permalink

        Strictly speaking PvL was not bragging about Rutte’s and the PVV’s score. He was just pointing out the shares of the different anti- and pro-EU groups. Is that so difficult to understand? Aren’t you the one to add some biased fluff to what was a rather reasonable statement?

      • Chris
        Posted March 16, 2017 at 12:13 pm | Permalink

        Update on projected seats, showing a significant rise in anti EU feeling, contrary to what the main media and eurocrats are claiming:

        Wilders has come second, moving up from third place in the last election.
        He has an increase in vote share of 3%, and an increase of c 33% in number of seats gained (15 increased to 20).
        I also understand another anti EU party has gained 3 seats for the first time ever?
        Rutte has seen his number of seats decline by c 20%, from 41 to 33.

        The Labour party has crashed from 38 to 9 seats.

        The Left Greens have made significant gains from a small base from 4 to 14.

        A Turkish Dutch Party has gained 3 seats (for first time ever apparently for an ethnic minority party in Holland).

        • Jerry
          Posted March 16, 2017 at 9:36 pm | Permalink

          @Chris; Where a party comes is irrelevant in, it is how likely they are to form the government that counts [1] when the norm is a coalition. Wilders and his party might have “come second” but they are as far (and arguably further) from political power/influence today than they were on Wednesday…

          [1] Mr Brown and Mr Clegg found this out in 2010, much to the dismay of the former and much to the delight of the latter gentleman

    • Know-dice
      Posted March 16, 2017 at 11:13 am | Permalink

      “Bye bye, no further comments from me.”

      That’s a shame PvL, although I usually don’t fully agree with your comments, it’s always enlightening to see something from and alternative angle 🙂

    • Anonymous
      Posted March 16, 2017 at 1:02 pm | Permalink

      In no way would the BNP have got any seats in the UK – let alone around 30% of them.

      We have a far lower level of extremism than Holland which would doubtless vote to leave the EU had this been an EU referendum.

    • libertarian
      Posted March 16, 2017 at 7:25 pm | Permalink

      P vL

      Went into hiding when he thought his countrymen would make him look a fool

      Pops up to gloat that the same guy thats told foreigners to go home and started a war of words with the turks is re-elected

      Toddle off Peter oh and take hefner with you

  20. Posted March 15, 2017 at 11:17 pm | Permalink

    Dearie me,

    I don’t know how many times I have to say it.

    Taxes does not raise revenue since we left the gold standard. The monopoly issuer of £’s does not need to save £’s. It is like saying the monopoly issuer of widgets needs to save widgets.

    It does not work like a household budget all you have to do is follow the accounting to see that.

    • Know-dice
      Posted March 17, 2017 at 9:28 am | Permalink

      All too much for me 🙁

      Where do the widgets come from?

      Off the Magic widget tree?

  21. Roy Grainger
    Posted March 16, 2017 at 6:44 am | Permalink

    But no change to the new £2000 dividend threshold which penalises hundreds of thousands of pensioners relying on investment income, they are just just collateral damage in Hammond’s war on the self-employed.

  22. Jerry
    Posted March 16, 2017 at 7:32 am | Permalink

    I’m glad that sanity has returned, this unnecessary Class 4 NIC hike could have become Mrs May’s “Pole Tax”…

    • APL
      Posted March 18, 2017 at 9:24 am | Permalink

      Jerry: ” Mrs May’s “Pole Tax” ..”

      eh?

  23. Mockbeggar
    Posted March 16, 2017 at 10:06 am | Permalink

    If the revenue loss associated with this cancellation of the NIC increase is only £600m in each of the next two years, where did the economics editor of the BBC get his figure of £2bn from on the news last night? Did he add up the £325m to 2 X £600m and say that’s near enough to £2bn and then present that as an annual figure?

    I’m confused.

    • Denis Cooper
      Posted March 16, 2017 at 2:19 pm | Permalink

      That’s over five years, it sounds more impressive like that.

  24. MikeP
    Posted March 16, 2017 at 11:05 am | Permalink

    John, you are financially astute, we know that, and always play an important part in holding ministers to account, but please take care to disavow your colleagues of the view that the NI policy reversal is a mere “rounding error” as the BBC were reporting yesterday. In big business, the odd million pounds here or there may well be a small percentage of their turnover but a much larger proportion of their profit so that’s why businesses strive for leanness in all aspects of their operations. Similarly the UK Government’s “big business” needs to think in terms of meaningful impacts on our deficit or surplus not only on the £700-£800bn annual spend. I’m sure some in the Treasury (hopefully) and back-benches do think like this but maybe not all?

  25. pleb
    Posted March 16, 2017 at 2:23 pm | Permalink

    I cringed when Hammond was grinning and making jokes in his budget speech.

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