Chancellor accused over National Insurance contributions hike for self-employed
Philip Hammond has been accused of jeopardising new business start-ups with a hike in National Insurance contributions (NICs) for the self-employed.
The Federation of Small Businesses (FSB) said that increase amounted to a £1 billion-a-year grab on people who set up new companies, while Labour said he had breached a Conservative manifesto pledge not to put up NICs.
FSB chairman Mike Cherry said it would simply drive up costs, undermining the Government's aim of encouraging entrepreneurs to grow their businesses in the UK.
"The National Insurance rise should be seen for what it is - a £1 billion tax hike on those who set themselves up in business," he said.
"This undermines the Government's own mission for the UK to be the best place to start and grow a business, and it drives up the cost of doing business.
"Future growth of the UK's 4.8 million-strong self-employed population is now at risk."
However Stephen Herring, the head of taxation at the Institute of Directors, said that while Mr Hammond would take "a lot of political pain", he was right to start creating a "level playing field" for employees and the self-employed.
"There will be many contractors, people in traditionally self-employed occupations, and entrepreneurs who will pay more in National Insurance contributions because of these changes, but in a flexible modern economy this is a journey we were always going to have to embark on at some point," he said.
Treasury figures showed the increase in so-called Class 4 contributions from 9% to 11% over two years, would raise an additional £2 billion over two years.
But when the abolition of Class 2 contributions announced by his predecessor George Osborne is taken into account, the net increase in revenues for the Exchequer is £145 million a year.
Mr Hammond said the overall average loss to self-employed people would amount to only 60p a week, while all those earning less than £16,250 will still see a reduction in their bills.
Announcing the move the Chancellor said the "dramatically different" treatment of the self-employed and employees in the National Insurance system could no longer be justified.
In the past they had reflected differences in state pensions and contributory welfare benefits but with the introduction of the new state pension, he said that these had been substantially reduced.
Nigel Keohane, research director at the Social Market Foundation think tank said the move represented a "colossal change" to the tax system.
While Mr Hammond said the Government would be looking to address continuing discrepancies when it came to parental benefits, Mr Keohane said that for the self-employed, entitlement to sick pay was just as crucial.
"The self-employed are half as likely to take sick days as employed people and they often cite lack of sick pay as a problem," he said.
However Resolution Foundation director Torsten Bell said most self-employed people would actually be better off.
"There are lots of good reasons for people to be self-employed but unfair and expensive tax advantages shouldn't be one of them," he said.
"By abolishing Class 2 NICs and staggering the increase in Class 4 NICs, most self-employed workers will actually be better off next year, with higher paid accountants and management consultants taking the biggest hit."