United Kingdom

15 Mar 2017

Hammond embarrasses May, ditches NIC hikes

In an embarrassing move for the UK government, the Chancellor of the Exchequer Philip Hammond announced, on Wednesday, the scrapping of the National Insurance hike for the self-employed. Philip Hammond said that Theresa May’s government will not proceed with the increases, which were critisised by both Tory and Labour MPs for breaking a 2015 Tory manifesto pledge.

Today seemed to be a difficult day for Theresa May in general. She had to ditch the NIC increase and listened to Brexit secretary, David Davis, admitting that there is no assessment on the cost of leaving the European Union without a deal. Hammond had presented the spring budget only a week ago but had received a lot of complaints from both the Tory and the Labour members of the parliament.

The Chancellor wrote a letter to Tory MPs saying that, while the changes were justified, the government decided not to go further with the rises in “class 4” national insurance contributions. Hammond tried to be diplomatic on this change of strategy, which his rivals described a U-turn. In the letter, he wrote that “it is very important both to me and the prime minister that we are compliant not just with the letter, but also the spirit, of the commitments that were made”. Abandoning the plans for increases means that a black hole of £2bn is created in a budget that was announced seven days ago. Funds that would come from the increase of the NIC would go to health and social care.

After the announcement of the budget, Hammond had reassured Tory MPs that they could defend the hikes, having in mind that the government would back them up. Theresa May said to MPs that “Tory MPs have pointed out that the trend towards self-employment creates structural problems which the government will address.” Jeremy Corbyn, the Labour Party leader, attacked her for creating chaos with her decisions and urged her to apologise to British citizens. Corbyn was harsh to say that May’s agenda is all about an NIC U-turn, no apology and a budget that falls on the poorest.

May was accused of changing her mind too fast by Angus Robertson, the SNP leader in Westminster, who wondered if she has also changed her opinion about negotiating with Scotland for article 50. Torsten Bell, director of the Resolution Foundation, expressed his disappointment for Hammond’s turn saying that “the U-turn on national insurance means the government has missed an opportunity to correct a big structural flaw in our tax system that allows self-employed people to pay far less than employees.”

Hammond’s U-turn or budget fiasco, as opposition newspapers described, will shake Theresa May’s government in difficult times. In a few days she is expected to trigger article 50 and officially start negotiating with the European Union on the terms of Brexit. U-turns are always causing political problems and the black hole in the budget has to be covered as soon as possible. Unfortunately for May’s government is increasingly overwhelmed with domestic and foreign problems.