Philip Hammond is right to increase National Insurance for some self-employed workers, the Institute of Fiscal Studies (IFS) has said
In its analysis of the chancellor’s Budget, the independent think-tank said raising the tax was a “modest but welcome change” which would help “create a less unequal playing field between the self employed and employees”.
The chancellor is facing a rebellion from Tory backbenchers who worry the move will punish entrepreneurship.
It also breaks a 2015 Conservative manifesto pledge not to increase National Insurance.
Hammond has defended the tax hike as a “basic question of fairness” to ensure rich self-employed workers pay enough for public services like the NHS.
IFS director Paul Johnson today sided with the chancellor. “A tax system which charges thousands of pounds more in tax for employees doing the same job as someone else needs reform. It distorts decisions, creates complexity and is unfair,” he said.
“The 2% increase in NICs for the self employed closes a small fraction of the gap between employees and the self employed. In combination with the abolition of class 2 NICs to be introduced at the same time it will leave any self employed person with profits of less than about £15,570 better off.
“The maximum loss, affecting those with profits over £45,000, will be £589 per year. The tax advantage to being self employed will still run into the thousands of pounds.”
However while Johnson welcomed the move, he said the Conservative Party had been “absurd” and “silly” to rule out the tax rise in 2015. “No party should repeat these sorts of promises,” he added.
Many Tory MPs are unhappy. Anne-Marie Trevelyan told the BBC the government “need to halt this particular decision now” adding the tax rise should be put “on hold so we can have a proper review and think in a holistic way”.
And Stephen McPartland said: “”We should be reforming public services so they work for Ordinary Working Families and cutting out the billions wasted every year by bureaucrats.
“Money that could be invested in frontline staff that help Ordinary Working Families. Instead we are taxing those families who have taken on the risk of setting up their own small business, many of which employ apprentices and are the backbone of our economy.
He added: “The chancellor needs to do a U-turn and quickly, as we will not vote for this.”