United Kingdom

09 Mar 2017

Hammond draws fire for NIC increase

Philip Hammond is the talk of the town in London. He has been accused being accused of breaking a 2015 Conservative promise for not raising the percentage of the National Insurance Contribution (NIC) for the self-employed. The Chancellor of the Exchequer announced yesterday, during the presentation of the government’s budget, that the NIC for the self-employed will be increased to 10% in April 2018, and 1% more a year later.

Hammond drew fire on him right away as he finished his speech. His political rivals and the media hit hard, by saying that he forgot all about the Conservative manifesto of 2015 which ruled out any increase in National Insurance, VAT and income taxes. Hammond argued, that the pledge only applied to NI contributions paid by employers and employees, and not to the Class 4 type levied on the self-employed. Pressed even by members of his own party, he said that “the decision was made to make things fairer”.

Torsten Bell, the director of Resolution foundation, came in defense of the Chancellor’s tax measure and reported that “most self-employed workers earn too little to be hit by the increase, which bites at incomes above £16,250 a year”. Analysts say, that the NIC change will affect 2.5 million self-employed people in the UK of which 1,6 million are basic tax payers. The average costs for the basic tax payer is expected to be around £240 and the total revenue for the Treasury will be £2bn over the next 3 years.

Gerald Coyn, a contender for the post of general secretary of Unite, described the measure as “a rip-off by a rotten government”. Susan Cramer, a Liberal Democrat said that “this increase of tax goes to some of Britain’s hardest working people like taxi drivers and builders”. Andrew Murrison, a Tory MP, expressed the opinion that it’s very important to ensure that self-employed people are not getting disadvantaged. Another Tory MP, Tom Tugendhat urged Hammond to rethink because the tax increase will hit the exact people that should be protected and encouraged.

Negative headlines were on the first pages of government friendly newspapers today. The Mail sported a “No laughing matter” headline while the Telegraph headline was accusing the Tories of breaking their tax vow. Hammond made the mistake of talking to media journalists and got a full-frontal attack that tested his nerves.

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Sky News asked him directly if he lied to the public, pointing to the Tory manifesto promises. The Chancellor answered that he was just asking “the self-employed on higher earnings to pay little bit more. It’s not huge amounts”. On BBC’s Breakfast show, a journalist asked him why he didn’t admit that he broke the Torie’s pledge, only to receive the answer that “this didn’t happen yesterday, we had this discussion back in 2015.” Nick Robinson of BBC Radio 4 invited the Chancellor to apologise to the British people for breaking the promise but Hammond denied to do that.

Despite the fact that some analysts say that the measure was designed to hit the well-paid CEOs that like to appear as self-employed to the tax service, Philip Hammond fails to protect the low income tax payers. It is yet unknown if the Chancellor will rethink his decision.