Class 4 National Insurance rise put on hold until the autumn

Although there had been much debate prior to last week’s budget amongst accountants and financial professionals about potential changes to National Insurance rates for the self-employed: few foresaw that the Chancellor would opt to implement the changes immediately. Many had suspected that this matter would be put to consultation so that all interested parties could put their points of view across, but few expected unilateral action would be taken.

In his budget speech the Chancellor of the Exchequer, Philip Hammond, announced increases in Class 4 NICs on earnings over £8,060 from 9 per cent to 11 per cent by April 2019 in an attempt to make the system ‘fairer and simpler.’ However, his plans were roundly criticised by opposition parties and some conservative MPS. The Prime Minister did attempt to explain and justify the proposal when she spoke briefly at a European summit in Brussels last week, insisting that the NIC rise would make the UK tax system “simpler, fairer and more progressive”.

However, it appears the government has now had something of a change of heart. After a backlash from a number of senior Conservative MPs and a former government minister who accused the government of breaching a Conservative 2015 General Election manifesto pledge not to raise NICs, Prime Minister, Theresa May, has announced that the government will now delay increasing National Insurance contributions until the autumn. Speaking after the summit she said:

“It [the changes to NICs] won’t be part of the finance bill. That is always what happens with national insurance changes. Those elements will be brought forward in the autumn.”

Why have the government had this change of heart? Well, apart from heading off criticism from within the party itself, the six-month delay between the Spring Budget 2017 and the autumn legislation will give the Government time to publish a new paper that sets out the case for the Class 4 NIC changes:

“People will be able to look at the Government paper when we produce it, showing all our changes and take a judgement in the round,” Prime Minister May said.

“Of course, the Chancellor and his ministers will be speaking to MPs, business people and others to listen to their concerns. [But] this is a change that leaves lower paid self-employed workers better off,” she added.

A report has already been commissioned by the government into the changing nature of the UK’s workforce will also look closely at the growth of the ‘gig economy’ and the self-employed community. The report, by Matthew Taylor, a previous adviser to the New Labour government under Tony Blair, is due for publication in the summer and is predicted to recommend enhancing employment rights and social benefits for the self-employed sector.

Former Conservative Party leader, Iain Duncan Smith believes the Class 4 NICs legislation should also be part of this review process, and any changes recommended thereafter should only then be implemented at the next budget:

“I would like to see that kept, the ball in play, because it doesn’t land until next year, so there is plenty of scope to look [at] how this actually affects them [the self-employed] and to listen to business representatives,” he said.

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