UK Politics

Budget 2017: 'Disarray' over National Insurance rises

Philip Hammond and Theresa May during the Budget Image copyright AFP

Labour's shadow chancellor says the government is in disarray after Theresa May said Budget tax rises would not go before MPs until the autumn.

John McDonnell called it a "partial U-turn" over National Insurance increases for self-employed workers.

Prime Minister Mrs May defended the change as "fair", amid a backlash from some Tory MPs and newspapers.

But she said it would not be voted on until after proposals for extra rights for the self employed was published.

The review of modern employment practices by RSA chief executive Matthew Taylor will be published in the summer.

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Media captionDid David Cameron criticise the Budget?

The prime minister told journalists on Thursday: "People will be able to look at the government paper when we produce it, showing all our changes and take a judgment in the round.

"Of course the chancellor will be speaking, as will his ministers, to MPs, business people and others to listen to the concerns.

The announcement was written up as a "delay" and "concession" by Friday's newspapers due to fears of a potential Conservative rebellion. More than 14 Tory MPs have criticised the move - the government's working majority is 16.

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Media captionTheresa May said the National Insurance rise would make things fairer

At a Treasury briefing on Thursday morning, it was suggested the bill could be introduced in the summer.

BBC political correspondent Ross Hawkins said Labour and Conservative MPs had been talking to each other about how they could delay the plans.

By saying the vote would be in the autumn, the prime minister had taken the heat out of the immediate political crisis, he added.

Wetherspoons on 'dinner party' Budget

More than a dozen Conservative MPs have criticised the £2bn National Insurance hit announced in the Budget, including former leader Iain Duncan Smith, John Redwood, Anna Soubry and Dominic Raab.

Labour's Mr McDonnell said: "The fact the prime minister won't fully support her own chancellor's Budget measure, and has been forced by Labour to row back on it just 24 hours after he delivered his speech in Parliament, shows the level of disarray that exists at the top of government."

Mrs May should "show some leadership, rather than this partial U-turn, and just scrap these tax rises for low and middle earners altogether", he said.

What is National Insurance?

  • National Insurance is designed as a contribution towards state benefits and services such as the NHS, unemployment benefits, sickness allowances and the state pension
  • National Insurance is deducted automatically from employees' salaries
  • There are different classes of National Insurance payments, depending on people's employment status and how much they earn
  • The self-employed currently pay a lower rate than those in employment
  • The government says this was traditionally down to a lesser entitlement to benefits and pensions, but that these disparities have mostly been removed, so the difference in rates is unfair
  • But critics say it is justified because self-employed people are not entitled to things like paid holiday and sickness leave

Budget tax rise: What's the fuss about?

At a press conference at the EU summit in Brussels, Mrs May said the change would leave "lower-paid self-employed workers better off, it's accompanied by more rights and protections for self-employed workers and it reforms the system of National Insurance to make it simpler, to make it fairer and to make it more progressive."

The Conservatives' last general election manifesto explicitly ruled out rises in National Insurance, VAT and income tax during the lifetime of the current Parliament but ministers argue that legislation enshrining the manifesto commitment in law - approved by Parliament in 2015 - referred only to National Insurance contributions paid directly by employers and their employees.

However Wales Office minister Guto Bebb said the party "should apologise" for the proposed rise, while another Conservative MP, Bob Blackman said: "It's a bit like having a contract, people sign it but don't look at the small print. It's weasel words.

"It's an issue about breaking a manifesto pledge - that's what we would be doing."

And Neil Carmichael, chair of the Commons education committee, said the policy was "at variance" with the party's manifesto and needed to be changed before being presented to Parliament.

"We need to have a very robust look at the figures so we can actually say to those affected that it is not going to be as bad as it is currently predicted," he told BBC Two's Daily Politics.

Liberal Democrat leader Tim Farron suggested the prime minister was worried about elections in May.

"Kicking the can down the road for a few weeks shows that the Conservatives are still planning to hit hard-working self-employed people, but that they haven't the courage to say so this side of the local elections," he said.

The change outlined in the Budget will see millions of self-employed workers pay an average of £240 a year more, but ministers say those earning £16,250 or less will see their NI contributions fall.

The change was supported by some economic commentators, who argue it takes account of the growth in the size of self-employment.

The Institute for Fiscal Studies suggested further rises were needed while the Resolution Foundation think tank called it "welcome and progressive".

Its chair, the former Conservative MP Lord Willetts, told Radio 4's Today the tax system was a "living, breathing thing that has to change as circumstances change".

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