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Business groups welcome Chancellor's National Insurance U-turn

Business groups which had opposed the National Insurance measures announced in the Budget welcomed the Chancellor's U-turn.

Mike Cherry, Federation of Small Businesses chairman, said: "We are delighted for our members and all the nation's self-employed that the Chancellor has recognised the strong opposition to this measure, admitting it was against the spirit of the Tory manifesto on which his party stood, and has now decided to scrap it for the duration of this parliament.

"The army of self-employed make a massive contribution to the UK economy.

"We've consistently argued, since this measure was announced last week, that a tax-grab on the genuine self-employed - the hairdresser, electricians and plumbers - makes absolutely no sense.

"We look forward to engaging with the summer review into the benefits that the self-employed need to be able to raise families, pay the bills when sick, and prepare for retirement.

"We need to see what other measures are brought forward to make sure they support the UK's small business and self-employed community."

Stephen Herring, head of taxation at the Institute of Directors, said: "The whole National Insurance saga can only be described as chaotic.

"The irony is that there are good reasons to look at levelling the playing field for employees and the self-employed, as the tax on direct employment is disproportionally higher.

"However, it would have been much better if, as the IoD had suggested, the Government had waited for the conclusions of its own review of modern employment, and reformed wholesale how different forms of work are taxed.

"Instead they announced they would raise one tax in isolation, only to cancel it a week later.

"Successive governments have acknowledged that the growth in self-employment has implications for tax revenues, but not one has wanted to take the political risk of undertaking real long-lasting reform."

Adam Marshall, director general of the British Chambers of Commerce, said: "The NICs rise, together with the cut to dividend tax-free allowances, was not viewed favourably by entrepreneurs - so this move and pause for thought are welcome.

"It would be far better to look at business and employment taxation in the round, to ensure that our tax system is competitive and equitable."

The general secretary of the GMB union, Tim Roache, said: "The Chancellor has made a complete dog's dinner of tax policy, and caused chaos for workers up and down the country.

"Instead of tackling bogus self-employment, which exploits workers and allows companies to scam the taxman, the Chancellor has picked the wrong battle and lost humiliatingly, leaving a black hole in his Budget."

But think tanks insisted Mr Hammond was right to consider reforms to National Insurance.

Torsten Bell, director of the Resolution Foundation, said: "Whatever the rights and wrongs of Conservative manifesto commitments, today's U-turn on National Insurance means the Government has missed an opportunity to correct a big structural flaw in our tax system which allows better-off self-employed workers to pay far less tax than employees.

"This matters both for fairness and for the public finances. The U-turn means the cost of lower National Insurance for the self-employed will now grow from £5.1 billion this year to an estimated £6.2 billion in 2019/20."

Nigel Keohane, research director at the Social Market Foundation, said: "There is a risk that the U-turn means the Government is now abandoning the chance to equalise the tax treatment for the self-employed and employed for good.

"The Government is right, however, to broaden out its review into the entitlements of the self-employed beyond the issue of parental rights. Research by the SMF shows that the self-employed face a wide range of disadvantages at work including sick leave, saving less for retirement and lack of access to training."

John O'Connell, chief executive of the TaxPayers' Alliance, said that the rethink on NICs was "heartening", but had drawn attention to the need for "drastic" reform of the "outdated" tax code.

"The Government is clearly petrified that the changing nature of work will erode its tax base, but the only way to deal with that is to make our overly complex tax code fit for the world we live in, instead of the fiddling around the edges that leads to embarrassing policy U-turns," said Mr O'Connell.

The Institute of Economic Affairs said National Insurance Contributions should have been scrapped altogether.

Denouncing Mr Hammond's planned change as "ill thought-through", IEA chief economist Julian Jessop said: " The principle of aligning what the self-employed and employed pay is right, but cutting NICs for the latter rather than raising those for the former would have been a much better way of achieving this.

"Better still, the Chancellor should have scrapped National Insurance Contributions altogether, including those paid by employers. They are a tax on jobs and wages and getting rid of the burden they place on working families would significantly help lower-income households."

Tory former chancellor Lord Lamont said the original proposal had been a "bad error of judgment" by the Government.

He said: "I welcome the Chancellor's withdrawal of the proposal to increase self-employed NICs. This was a bad error of judgment and should never have been proposed.

"But this sad affair raises questions of process and how such a decision came to be made in the first place."

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