National insurance rises for the self-employed abandoned

The Chancellor of the Exchequer, Philip Hammond, has today announced that the Government will now not proceed with the increases in national insurance rates for self-employed individuals which he proposed in the Budget on 8 March.

The self-employed currently pay contributions at 9% on earnings between a lower and upper limit (£8,164 and £45,000 for 2017/18). Above the upper limit they pay at a rate of 2%.

In the Budget, Mr Hammond proposed to increase the 9% rate to 10% from 6 April 2018, and to 11% from 6 April 2019. He justified this by reference to the fact that employees (and their employers) pay at higher rates than these, and that changes to the State Pension have increased the benefits that the self-employed have access to in return for their contributions.

The Conservative Party’s manifesto for the 2015 General Election said: “We can commit to no increases in VAT, income tax or National Insurance.”

This ‘tax lock’ was legislated (for national insurance purposes) in the National Insurance Contributions (Rate Ceilings) Act 2015, which received the Royal Assent on 17 December 2015. However, that covered only contributions by employees, not the self-employed.

Mr Hammond’s Budget proposals do not breach that legislative ‘lock’, but clearly he has been persuaded by arguments that they were contrary to the manifesto commitment.

It remains to be seen whether any alternative proposal will be introduced to fill the hole in the Government’s expected receipts.

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