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9 March 2017

Budget 2017: Why Philip Hammond will have to retreat from his attack on the self-employed

There is a reason self-employed workers are treated differently. 

By Chris Leslie

Philip Hammond probably didn’t expect such grizzly headlines after his first Budget – and perhaps his self-deprecating joke comparing himself to the soon-to-be-sacked Norman Lamont may come back to haunt him.

The stand out policy change was, of course, the rise to 11 per cent in Class 4 National Insurance contributions on the self-employed. Broadsheet newspapers are highlighting the anxiety among Conservative backbenchers about their heartlands, aghast at such a smack in the face. Tabloids are rightly pointing out the disloyalty to “white van man” and sole traders across the country.

In fact, the Budget hit the self-employed with a double whammy. It took hundreds of pounds from their take-home profits and also lowered the dividend allowance if they run their small business through a company structure.

While there is an anomaly with the rate of Nics paid by those in salaried employment, historically this has been justified because the self-employed have to cope with far less security and stability in their working life. No sick pay or holiday pay, but also far less predictable income makes planning ahead, saving or even providing for pensions very difficult. Insuring against loss of earnings is incredibly hard. If you’re self-employed and trying to get a mortgage, banks are more wary and it has become harder for “self-certified” applications recently.

The self-employed also typically earn less than those in salaried work, with half receiving lower than the national living wage. Indeed, a higher proportion of the self-employed work 50 hours or more per week than those with employment contracts. So if you’re working longer hours and earning less, to hear that the Chancellor wants to raise your tax as a deliberate choice of policy isn’t going to go down very well. And there are now nearly 5m self-employed people in the UK. It’s true that there is some abuse on the margins and the problem of “bogus self-employment” and exploitative circumstances has got to be tackled. But hitting the whole class of the self-employed in this way is a crude and inconsiderate way to proceed.

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The worst aspect, though, is probably the broken manifesto promise. It was immediately obvious to most MPs as soon as the Chancellor announced his change that this cut right across the pledge to see “no increases in National Insurance contributions” repeated so frequently throughout that 2015 Conservative Party manifesto. Every Tory MP was elected on this promise. It was no wonder the chamber went very quiet when Hammond ripped it up.

The Chancellor’s political judgement wasn’t just askew on the solemn need to keep promises made to the electorate. He clearly miscalculated about the likely scale of rebellion on his own side on this issue. The fact that the House of Commons Library have confirmed to me this policy change will require a free-standing piece of legislation, enacted via a National Insurance Bill rather than tucked away inside a Finance Bill, suggests an almost insurmountable challenge for government whips. I’d predict a swift U-turn in the coming days, because the Chancellor must know that the scope for sensible cross-party working to amend such legislation is very high. Indeed, I am already talking to MPs from across the party divide about how a sensible review of this whole situation could be achieved.

The self-employed are a crucial part of our economy. We need political leadership that understands the contribution of small business. I’m determined to work with MPs of all colours to stand up for the needs of hard-working and risk-taking entrepreneurs and make sure that our tax system fairly reflects the different challenges they face.