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Hammond's NICs U-turn is a political disaster for the government Hammond's NICs U-turn is a political disaster for the government
(about 1 hour later)
Not so funny now, is it chancellor? A week to the day since he peppered his debut budget speech with gags to disguise its thinness, Philip Hammond has just done a screeching U-turn.Not so funny now, is it chancellor? A week to the day since he peppered his debut budget speech with gags to disguise its thinness, Philip Hammond has just done a screeching U-turn.
There was only one measure of note in the package – an increase in national insurance contributions for the self-employed – and from the moment it was announced the proposal caused a firestorm of criticism.There was only one measure of note in the package – an increase in national insurance contributions for the self-employed – and from the moment it was announced the proposal caused a firestorm of criticism.
Significantly, the strongest opposition to the NICs increase came from the rightwing papers that have hitherto been cheerleaders for Theresa May’s government. Hammond could have faced down some grumpy backbenchers; facing down the Daily Mail was another matter altogether.Significantly, the strongest opposition to the NICs increase came from the rightwing papers that have hitherto been cheerleaders for Theresa May’s government. Hammond could have faced down some grumpy backbenchers; facing down the Daily Mail was another matter altogether.
The chancellor’s letter to the Treasury select committee explaining his change of heart only made matters worse, however. Hammond repeated the justification for the NICs increase outlined in the budget – the self-employed should pay more for their improved pension entitlements and the differences in tax treatment was costing the exchequer a lot of money by encouraging people to certify themselves as self-employed.The chancellor’s letter to the Treasury select committee explaining his change of heart only made matters worse, however. Hammond repeated the justification for the NICs increase outlined in the budget – the self-employed should pay more for their improved pension entitlements and the differences in tax treatment was costing the exchequer a lot of money by encouraging people to certify themselves as self-employed.
These were valid points, just as there were a week ago. Hammond’s proposal was supported by the Resolution Foundation, which is run by Torsten Bell, a former aide to Ed Miliband, and by the Institute for Fiscal Studies, the country’s foremost authority when it comes to anything to do with the public finances. These were valid points, just as they were a week ago. Hammond’s proposal was supported by the Resolution Foundation, which is run by Torsten Bell, a former aide to Ed Miliband, and by the Institute for Fiscal Studies, the country’s foremost authority when it comes to anything to do with the public finances.
That said, there was no real need for Hammond to announce the NICs change. It was going to raise a tiny amount of money – only about £2bn over the course of this parliament – and was set to make no noticeable difference to the size of the budget deficit. Hammond has already, and wisely, eased the severity of austerity and will comfortably meet his fiscal targets without raising NICs.That said, there was no real need for Hammond to announce the NICs change. It was going to raise a tiny amount of money – only about £2bn over the course of this parliament – and was set to make no noticeable difference to the size of the budget deficit. Hammond has already, and wisely, eased the severity of austerity and will comfortably meet his fiscal targets without raising NICs.
It would also have made a lot of sense to wait for the autumn budget to make the move. Hammond has made it clear this will be the big fiscal event of the year, and there would have been a good chance the NICs increase would have got lost among all the other tax changes. By that time, he would also have received the report on self-employment from Matthew Taylor, which might have given him the chance to offer some sweeteners to the self-employed in the form of better employment rights.It would also have made a lot of sense to wait for the autumn budget to make the move. Hammond has made it clear this will be the big fiscal event of the year, and there would have been a good chance the NICs increase would have got lost among all the other tax changes. By that time, he would also have received the report on self-employment from Matthew Taylor, which might have given him the chance to offer some sweeteners to the self-employed in the form of better employment rights.
As it was, the change was seen as breaking a 2015 Conservative manifesto commitment not to raise NICs for the duration of the current parliament. Hammond only made matters worse by saying that the pledge did not cover NICs for the self-employed.As it was, the change was seen as breaking a 2015 Conservative manifesto commitment not to raise NICs for the duration of the current parliament. Hammond only made matters worse by saying that the pledge did not cover NICs for the self-employed.
The U-turn will provide a modest boost to the economy, because the self-employed will be better off than they otherwise would have been. For the government, it is a political disaster. If initially it looked as if it was picking on a group often forced unwillingly into self-employment, it now looks pathetically weak. It raises the question of who is actually calling the shots at the Treasury: Hammond, May or Paul Dacre.The U-turn will provide a modest boost to the economy, because the self-employed will be better off than they otherwise would have been. For the government, it is a political disaster. If initially it looked as if it was picking on a group often forced unwillingly into self-employment, it now looks pathetically weak. It raises the question of who is actually calling the shots at the Treasury: Hammond, May or Paul Dacre.