Philip Hammond has U-Turned on his planned increase in class four national insurance contributions just days after announcing it in the budget.
In revenue terms, the measure won’t cost the Chancellor much today – a mere £2bn hole once changes elsewhere are taken into account – but it risks leaving a bigger hole in the public finances in the future as more and more people become self-employed. That the changes designed to make the NI increase more palatable are still in place means that this change will accelerate.
It’s worth remembering at this point that the national insurance rise was popular with the public, had been backed by experts across the political spectrum and that the government has a double-digit lead in the opinion polls. As far as an unpopular measure is concerned, this is very much governing with the difficulty set all the way down to “Casual”.
It’s a reminder of three things that are often forgotten about Theresa May. The first is that she has a small Commons majority. The second is that she has inherited a series of promises on tax and spend from David Cameron and George Osborne that were designed to trap Labour and the Liberal Democrats, but don’t add up. The third is that she has very few die-hard allies who will go to bat for her when the going gets tough.
One of the striking things about the attempt to increase national insurance is what didn’t happen: that is, there wasn’t a concerted push by May’s allies in Parliament to bolster support for the measure.
And all that is with a tax rise that is popular with the public. It doesn’t bode well for the government’s ability to get its way on unpopular measures in the future.
All of which means that the issue to watch is the question of Britain’s continuing payments into the European Union. May hasn’t ruled out continuing to pay into the European Union after we leave. One of Britain’s best cards is that, as a EU creditor and a large economy, is to buy the deal it needs by paying an outsized price for the parts of EU membership it wants to keep. We’ve seen how difficult the government finds getting its way on a small and popular measure. It doesn’t bode well for its freedom to strike a Brexit deal that works.