Philip Hammond's self-employment tax hike marred a refreshingly mundane Budget

John O'Connell
The Chancellor Of The Exchequer Leaves Downing Street To Present The 2017 Budget To Parliament
Hammond avoided the gimmicks that characterised his predecessor as chancellor (Source: Getty)

It took just a couple of hours for the chancellor’s Budget to come under heavy fire.

He set out changes to Class Four National Insurance contributions, increasing them from 9 per cent to 11 per cent over a couple of years. This breaks a Conservative manifesto pledge ruling out VAT, income tax and NI increases, his critics said.

And what about the just about managing (Jams)? Aren’t the Conservatives supposed to be the party of small business, enterprise, opportunity and growth? Why slap taxes on entrepreneurs? Furious journalists – whose readers make up this electorally potent group – gave Number 10 and Treasury press teams a pretty hard time of it yesterday afternoon.

To tax specialists, it was thought that Hammond was attempting to equalise the NI treatment of the self-employed and “regular” employees. That in itself is a sensible thing to do. First, it is right to ensure that the tax system does not discriminate against certain types of work. Second, the self-employed can now qualify for the same state pensions as employees and are possibly going to be conferred with more statutory benefits like holiday and maternity/paternity pay as politicians get to grips with the gig economy.

Read more: Was the Budget bad news for entrepreneurs?

But yesterday, Hammond didn’t actually say that is what he wants to do. So it simply looks like a tax hike on the self-employed – hence the hammering he took from the media. In any case, if he wants to equalise these rates, he should be cutting employee rates, not hiking those for the self-employed.

The fuss engulfed what was otherwise a fairly mundane economic statement. In a welcome change from the big set-pieces of Gordon Brown and George Osborne, there was a refreshing move away from a bewildering array of gimmicks designed only to play political games. Furthermore, he announced some welcome upward revisions to growth forecasts and set out a quicker pace of deficit reduction than at the Autumn Statement.

But we shouldn’t forget that there is still some way to go before the public finances are repaired. Mark Littlewood of the Institute of Economic Affairs pointed out yesterday that the chancellor now seems to be counting on growth to do the work of deficit reduction for him, so that he doesn’t have to make any new spending cuts.

Read more: Consumer-led growth is unsustainable says Sir Charlie Bean

Yet there are still big-ticket items that can and should be scrapped so that we can enter the negotiations with the EU on a sounder footing. Take HS2 – that £56bn (and counting) monstrosity should be ditched for smaller, more targeted infrastructure projects that deliver better value for money and save taxpayers’ cash. We could also save £6bn a year by getting rid of the state pension triple lock – which, given the wriggle room we now seem to have with manifesto commitments, is doable. Hammond also spent a lot of the statement talking about the need to adequately fund social care, so this seems like an even more sensible move.

The other thorny policy area he had to deal with was business rates. While some trade groups responded badly to the specific relief measures, it was actually very encouraging to hear that the chancellor appreciates that the business rates revaluation process must be more regular and much smoother. That will head off the kind of political storm he faced in the past few weeks where some small businesses received devastating hikes in their bills. We have argued for this before, suggesting he should take a look at annual and digitised revaluations to give businesses certainty.

Read more: The real business rates scandal: The government is abolishing accuracy

Much less palatable was watching Hammond deal with Osborne’s promise to spend the proceeds of the sugar tax on school sports. Revenue from the tax has come in much lower than forecast, so now the chancellor has to find the money from somewhere else to pay for the pledge. If today has taught him anything, it’s that misguided, fiddly interventions like this are a distraction, so he should seek to comprehensively rid the tax system of such needless gimmicks at November’s Budget.

Next time round, we’d like to see him deal with Stamp Duty too. It gums up the housing market, means that young families can’t get on the housing ladder and prevents older couples from downsizing when they would like to.

Let’s remember the big picture: the national debt is still astronomical and growing. That will have to be paid off by future generations of taxpayers, so even outside of these economic statements, tougher action on the long-term challenges we face is vital. That means dealing with public sector pensions, state pensions and the funding model for the NHS and social care.

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