Tory Chancellor Philip Hammond broke a clear manifesto pledge today when he hiked taxes for the self-employed.
In his first Budget since taking over as Chancellor last July, Hammond announced National Insurance contributions for the self-employed would go up by 2% by April 2019.
The move is set to raise £2billion for the Treasury, but breaks an election promise from the Tories that there would be no increases to National Insurance if the party were elected.
A Treasury spokesperson later confirmed that together with changes announced by previous Chancellor George Osborne in 2015, 2.48million self-employed people will be paying more in tax than at the time of the last election.
Hammond said he was making the changes in order to tackle the unfairness of an employed and self-employed person earning the same amount of money but paying different National Insurance rates.
He said: “Employed and self-employed alike use our public services in the same way, but they are not paying for them in the same way.
“The lower National Insurance paid by the self-employed is forecast to cost our public finances over £5 billion this year alone.
“That is not fair to the 85% of workers who are employees.”
The current rate for self-employed workers paying the Class 4 rate of National Insurance is 9% on profits. By April 2019 it will be 11%.
However, there will be some winners, with self-employed people earning less than £16,250 seeing a reduction in their total NICs bill.
Lid Dem Shadow Chancellor Susan Kramer branded the increase a tax on entrepreneurs.
She said: “This is a tax on builders, taxi drivers and window cleaners, some of Britain’s hardest working people. This hits the gig economy where people are already insecure and facing rising prices and job uncertainty. And on International Women’s Day it will hit over one and a half million women.
“Companies will continue to save money by using workers without giving them the security and benefits of staff jobs.
“Meanwhile, these workers will have to pay more. This is patently as unfair as it is a tax on entrepreneurship and hard work.”
Ian Cass, Chief Executive of the Forum of Private Business, warned that the changes might deter some from taking the risk of going self-employed: “If there are no incentives for small businesses this would lead to fewer people taking the plunge into self-employment and job creation, and opting simply to be employed.
“That would be bad news both for the UK economy and for the jobs market.
“The immediate National Insurance changes announced will already have some prospective small businesses and small employers thinking twice.”
Torsten Bell, Director of the Resolution Foundation think tank, welcomed the increase.
He said: “Today’s announcement is a bold and welcome move to ensure the tax system catches up with the modern world of work. There are lots of good reasons for people to be self-employed but unfair and expensive tax advantages shouldn’t be one of them.
“By abolishing Class 2 NICs and staggering the increase in Class 4 NICs, most self-employed workers will actually be better off next year, with higher paid accountants and management consultants taking the biggest hit.
“These tax rises should be part of wider reforms that address remaining incentives to become self-employed while offering greater support with the likes of maternity pay and pension savings.”