Was Philip Hammond right to U-turn on his national insurance hike for the self-employed?

Philip Hammond Announces U-turn On National Insurance Budget Increase
Less than a week after the Budget and Hammond has scrapped the NIC hike (Source: Getty)

Julian Jessop, chief economist at the Institute of Economic Affairs, says Yes.

It is increasingly hard to justify why the self-employed should pay much lower national insurance contributions (NICs) than those who work for others.

Nonetheless, this distortion should have been tackled as part of a fundamental rethink of the tax and benefit system, rather than by the bitty reform announced last week.

If equal treatment was indeed the main consideration, it would have been better to level the playing field by lowering the taxes paid by the employed. In reality, of course, the motivation was to raise more revenue to pay for higher public spending.

There is therefore a risk that the U-turn will be seen as an excuse to increase other taxes that are even more damaging. A more radical solution would be to abolish NICs completely and roll them into income tax, with suitable protection for those past retirement age. But any reform should focus on reducing the overall burden of taxation, not adding to it.

Rachel Cunliffe, deputy editor of Reaction, says No.

Increasing national insurance contributions (NICs) for the self-employed was a controversial move, especially as many journalists are freelance and have national platforms to air their grievances.

But it was a tough call. The 2015 Conservative manifesto pledges not to raise income tax or NIC, but also ring-fences spending on major areas (health, education, pensions), while simultaneously promising to tackle the deficit. Now Philip Hammond also has to make contingency plans for the economy post-Brexit. His hands are tied, so he tried to fudge it.

There are arguments for and against the way he fudged it, but having announced the rise, he should have stuck to it. Instead, the chancellor looks weak, indecisive, and at odds with Number 10, especially as last week he promised Tory backbenchers that the government would back the increase.

Both he and Theresa May are now in the awkward position of having to defend a move they have just U-turned on. Hammond should have owned the decision, accepted the backlash, and moved on.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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