UK's Hammond defends NICs rise amid claims of manifesto pledge break

Chancellor Philip Hammond was forced to defend his planned rises in National Insurance contributions for the self employed less than 24 hours after delivering them in his Spring Budget.

Facing a typhoon of criticism over what amounts to breaking a 2015 manifesto pledge not to increase taxes, Hammond said the rise to 10% from 9% from April 2018 was needed because of "new challenges" the government faces.

"There was a broad commitment to lock taxes so there would be no tax increases. That's what we have done," he told the BBC.

"What I think we have done now is get the relationship between employed and self-employed National Insurance contributions into a fairer place."

Self-employed UK workers will pay an extra 1% in national insurance contributions (NICs) from April 2018 with a further 1% piled on top the following year, Chancellor Philip Hammond said on Wednesday.

Delivering his Spring Budget, Hammond said lower contributions from self-employed workers is forecast to cost the public purse £5bn this year.

The measure would raise a net £145m a year, Hammond added.

"Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way," he told MPs.

"The abolition of Class 2 NICs for self-employed people, announced by my predecessor in 2016 and due to take effect in 2018, would further increase the gap between employment and self-employment."

"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. I have considered the possibility of simply reversing the decision to abolish Class 2 contributions, but the Class 2 NIC is regressive and outdated. It is right that it should go."

The move was slammed by small business groups, with the Federation of Small Business (FSB) said the move would drive up the cost of doing business.

“However, the National Insurance rise...should be seen for what it is – a £1bn tax hike on those who set themselves up in business. This undermines the government’s own mission for the UK to be the best place to start and grow a business, and it drives up the cost of doing business," the FSB said in a statement.

"Future growth of the UK’s 4.8m-strong self-employed population is now at risk. Increasing this tax burden, effectively funded by a reduction in corporation tax over the same period, is the wrong way to go.”

Kevin Nicholson, head of tax at PwC, said that the increase was smaller than expected, but the significance of the move should not be underestimated and had "opened up a big potential money spinner" for the Treasury.

"The self-imposed tax lock is tying the Government's hands, as the Chancellor clearly wants to raise money but is committed not to do so from the main taxes of income tax, NIC and VAT. That means other areas of the economy will continue to see increases and tightening. There clearly wasn't scope for a give-away Budget but it would be good to see more attention given to entrepreneurs and wealth creators," Nicholson said.