Theresa May delays self-employed National Insurance rise until autumn

Prime Minister Theresa May - Image credit: Neil Hall/PA Wire/Press Association Images

Controversial plans to increase National Insurance contributions (NICs) for the self-employed will be delayed until the autumn following a major Tory backlash, Theresa May has revealed.

The Prime Minister mounted a vigorous defence of the reforms announced in the budget, but left the door open to the possibility of the UK Government making concessions to prevent a backbench rebellion.

She spoke out after a number of her own MPs, including one minister, hit out at the changes, which will see Class 4 NICs go up by one per cent a year for the next two years.

Around 2.5m sole traders will see their bills go up as a result.

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The policy seemed to break a 2015 Tory election manifesto commitment not to raise taxes – including NICs – for at least five years.

Speaking at an EU summit in Brussels, Theresa May said Chancellor Philip Hammond would be talking to "MPs, businesspeople and others to listen to their concerns" ahead of bringing in legislation later this year.

Before taking the reforms through Parliament, the UK Government will produce a paper outlining the changes to make sure people understand the new system, she added.

"Of course, the change to National Insurance will require legislation on its own, it won't be part of the finance bill, that's always what happens with National Insurance changes and those elements of the package will be brought forward in the autumn," May told reporters at the European Council summit in Brussels.

"What we will do this summer is publish a paper which will explain the full effects of the changes to Class 2 and Class 4 along with some changes we plan to make to the rights and protections for self-employed workers, including on issues like pension rights and parental rights and maternity pay." 

The legislation will also follow former Labour adviser Matthew Taylor's review of self-employment practices, which is expected to recommend enhancing some social benefits for the self-employed.

While adopting a conciliatory tone, the Prime Minister mounted a strong defence of the reforms, highlighting analysis from the Institute for Fiscal Studies saying the current system "distorts decisions, creates complexity and is unfair".

"This is a change that leaves low-paid self-employed workers better off, it's accompanied by more rights and protections for self-employed workers and it reforms the system of National Insurance to make it simpler, to make it fairer and to make it more progressive," she said. 

She also argued that the sharp rise in the number of self-employed people paying lower NICs was making it more difficult to fund essential public services. 

"The decision on National Insurance was taken in the context of a rapidly changing labour market in which the number of people in self-employment, often doing the same work as people employed more traditionally, is rising rapidly," she argued.

"We need to ask if it's making the tax system more sustainable and what we see is, yes it is, because the shift towards self-employment is eroding the tax base.

“It's making it harder to afford the public services on which ordinary working families depend and this goes some way towards fixing that.

"I think you need to ask, is it fair? And I think it is fair to close the gap in contributions between two people doing the same work and using the same public services to make the same contribution to wider society."

May was dismissive of the idea that the changes had broken the Tories' 2015 manifesto commitment. 

Earlier one of her own frontbenchers, Wales minister Guto Bebb, said he would "apologise to every voter in Wales" for breaking that commitment. 

But the Prime Minister argued that legislation enshrining the so-called "tax lock" had always been clear that it only referred to Class 1 NI contributions, paid by employers and employees.

"When the tax lock legislation was put through, which dealt with the various issues of tax that were addressed in the manifesto, it was very clear that it related to Class 1 National Insurance and that covers 85 per cent of workers, so 85 per cent of workers were covered by that one NI element of the tax lock," she said.

"At the time it was made very clear that it was that legislation that was delivering on our manifesto commitment and there were no amendments and no concerns raised at the time.

Labour said the Prime Minister should scrap the NICs rise altogether.

Shadow Chancellor John McDonnell said: "The fact the Prime Minister won’t fully support her own Chancellor's budget measure, and has been forced by Labour to row back on it just 24 hours after he delivered his speech in Parliament, shows the level of disarray that exists at the top of government.

"Theresa May should simply show some leadership, rather than this partial U-turn, and just scrap these tax rises for low and middle earners altogether."