Philip Hammond has defended a controversial rise in National Insurance for the self-employed as a “right and fair” move that will help the Government steer Britain through an uncertain future.
The Chancellor is facing a growing political row over the hike in National Insurance contributions for high-earning self-employed workers announced in his first Budget.
Speaking to Sky News, Mr Hammond said the move would make the system fairer considering that employees and self-employed workers have access to similar benefits from the state.
“It’s only right and fair we should take a small step to closing the gap between the treatment of employed and self-employed people,” he said.
Under the measure, class 4 contributions, which are paid by those with profits of £8,060 or more a year, will rise by 1% to 10% in 2018, with a further 1% increase in 2019.
That means a £240-a-year hit on 2.5 million self-employed workers.
The move appears to break a 2015 election manifesto commitment to a “five-year tax lock” not to increase income tax, VAT or National Insurance.
The Chancellor has come under pressure from some fellow Conservatives to backtrack. A reduction in the tax-free allowance for dividends was also seen as hurting the self-employed.
Baroness Altmann, a former pensions minister, said the measures unfairly target one group.
“The lifeblood of our growth is likely to come from smaller businesses trying to make a go. If you’re starting to penalise them, or they feel penalised, then I think we might have a problem,” she told Sky News’ All Out Politics.
The peer stopped short of calling for a U-turn, but did say she would like to see “some trade-off”, adding: “A lot of people are feeling this was not quite what the British people were promised.”
Mr Hammond said the Government was protecting the self-employed who make lower profits, and insisted that with Brexit the circumstances had changed since the 2015 manifesto.
“No Conservative likes to increase taxes, National Insurance, anything else,” he said.
“But our job is to do what needs to be done to get Britain match-fit for its future.”
Health Secretary Jeremy Hunt said: “The Conservative party is not just the party of entrepreneurs but more fundamentally it is the party of wealth creation.”
Labour has criticised the move, saying there is “nothing fair” about it.
“It does break a manifesto commitment,” shadow chancellor John McDonnell told Sky News.
“People were promised no increase in National Insurance at the last election. I’m sure many voted on that basis and they feel betrayed.”
Mr Hammond will try to move away from the row in Westminster and focus attention on a pledge to invest millions of pounds in the Midlands.
Travelling to the region, he will publish a “Midlands Engine Strategy”, his version of the Northern Powerhouse of his predecessor George Osborne.
The initiative is aimed at boosting productivity and growth in the region.