Belfast Telegraph

Hammond accused of breaking Tory manifesto pledge with National Insurance rise

Chancellor Philip Hammond was accused of breaking a Conservative election promise, as his first Budget hit almost 2.5 million self-employed people with a £240 National Insurance hike.

Labour vowed to oppose what it termed an "unfair £2 billion sole-traders' tax on the self-employed low and middle income earners", while Liberal Democrats branded the move a "jobs tax".

And the Chancellor also hit savers by cutting tax-free dividend allowances from £5,000 to £2,000, in a move designed to reduce tax incentives for workers to register themselves as companies.

The measures helped raise cash for a bid to resolve two of Theresa May's worst political headaches, as Mr Hammond announced £2 billion for social care in England and a £345 million package to ease the impact of the business rate revaluation.

But the Chancellor said that the Budget package was neutral overall, as he stored up a war-chest for expected choppy waters ahead as the UK goes through the process of Brexit.

He was buoyed by a short-term boost to official growth forecasts, upgraded from 1.4% to 2% for this year. But the Office for Budget Responsibility (OBR) took a gloomier outlook for the following period, slashing predicted growth from 1.7% to 1.6% in 2018 and from 2.1% to 1.7% as Brexit takes place in 2019.

Borrowing was revised downwards by £16.16 billion for 2016/17 to £51.7 billion. And the OBR tweaked deficit forecasts down in each of the next five years, reaching £16.8 billion in 2021/22.

Mr Hammond said the Budget sets out a plan for a "brighter future" as the UK leaves the European Union.

With the Prime Minister expected to start the formal Brexit process within days, the Chancellor told the Commons: "As we start our negotiations to exit the European Union, this Budget takes forward our plan to prepare Britain for a brighter future; it provides a strong and stable platform for those negotiations."

But shadow chancellor John McDonnell said he was "building our economy on sand", leaving the UK "less prepared for the challenges we face outside of the EU".

Despite measures for women, including £20 million to tackle domestic violence, £5 million to help mothers return to work and £5 million for celebrations of the centenary of votes for women, Mr McDonnell said the Budget - which fell on International Women's Day - had "failed the fairness test for women" who are hardest hit by public service cuts.

Mr Hammond's decision to increase the Class 4 National Insurance contributions (NICs) paid by the self-employed from 9% to 11% over two years from April 2018 will raise just over £2 billion in four years from 2.485 million workers.

The Treasury stressed that, taken together with a previously-announced decision to abolish Class 2 NICs, the overall additional revenue totals just £145 million a year - the equivalent of 60p a week for 1.6 million self-employed people.

The abolition of Class 2 NICs by Mr Hammond's predecessor George Osborne in the 2016 Budget had been due to save 3.4 million people an average £134. Mr Osborne said at the time that it would "allow millions of self-employed individuals to keep more of their money and invest it back into growing their business".

But Mr Hammond told MPs the "dramatically different" treatment of employees and self-employed people under NICs was costing the Treasury £5 billion a year and was "no longer justified by the difference in benefits entitlement".

"That is not fair to the 85% of workers who are employees," he said. "To be able to support our public services in this Budget and to improve the fairness of the tax system, I will act to reduce the gap to better reflect the current differences in state benefits."

Labour's deputy leader Tom Watson said the move was a clear breach of a promise to voters in the 2015 general election, saying: "The Tories put a promise not to raise National Insurance in their manifesto four times. Today they're breaking that promise." And Tory former minister Andrew Murrison told the Commons it was "vitally important" to ensure the change did not disadvantage "White Van Man".

Liberal Democrat Treasury spokeswoman Baroness Kramer said: "This is a tax on builders, taxi drivers and window cleaners, some of Britain's hardest working people. This hits the gig economy where people are already insecure and facing rising prices and job uncertainty. And on International Women's Day, it will hit over one-and-a-half million women.

A Treasury source insisted that the Government had "kept its manifesto commitments", as legislation published after the election made clear that the pledge applied only to the Class 1 NICs paid by employees.

But the manifesto itself makes no distinction between different classes of contribution, stating simply: "A Conservative Government will not increase the rates of VAT, Income Tax or National Insurance in the next Parliament."

Some 2.2 million people - including 7% of all the country's pensioners - are expected to lose an average £320 a year due to Mr Hammond's changes to dividend allowances.

Half are director-shareholders who have incorporated themselves as companies, but the others include savers with holdings of more than £50,000 in stocks and shares outside ISA schemes.

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