In our Spring Budget 2017 coverage last week, we reported Chancellor Philip Hammond’s announcement of an increase in Class 4 National Insurance Contributions (NICs) from 9% to 10% from April 2018 and then to 11% from April 2019. This led to criticism that the government had broken a 2015 manifesto pledge: ‘We will not raise VAT, National Insurance Contributions or Income Tax.’
This week, Mr Hammond stated: ‘In the light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with the Class 4 NIC measure set out in the Budget.’
Withdrawal of the NIC increases for the self-employed? At first sight, good news. Looking deeper, we’d say be careful what you wish for. Whether you agree with it or not, the fact is that the perception is out there that the playing field isn’t quite level as between poor old over-taxed PAYE employees and the self-employed, gig workers, one-man companies and so on. And perceptions matter in politics – they matter very much more than facts do.
That’s why, in withdrawing the NIC changes, Mr Hammond has also felt it necessary to warn that he will look at levelling the playing field in other ways. It’s been suggested for example that IR35 may be expanded or even that working via service companies generally may be vulnerable.
Frankly, we fear that we may come to wish that Mr Hammond had drawn the sting by the fairly modest NIC increases he proposed and moved on rather than being driven to undertake more drastic surgery on the tax system.