The embarrassing National Insurance U-Turn

Just a week after the Chancellor, Philip Hammond, announced in his first budget that the National Insurance contributions for the self-employed would go up by 2% by 2019, the Government made a U-turn and scrapped plans to increase this proposed hike.

The increase in National Insurance contributions for self-employed was to narrow the gap in the level of National Insurance paid, as the gap between benefits available to the self-employed and those in employment had closed significantly over the last few years. There had been a sharp increase in self-employment in recent years and the belief was that this was driven mainly by the tax differences. This represented a significant risk to the tax base and thus to the funding of public services.

The increase was set to raise £2billion for the Treasury. However, this would have breached the Tories’ election manifesto pledge not to increase National Insurance. Therefore, complying with the spirit of the commitments that were made, the Chancellor decided to scrap the proposed increase.

This is one of the several embarrassing times that politicians have had to wheel back pledges, whether it be George Osborne’s tax on hot food such as pasties and sausage rolls prompting uproar across the country, or the tax credit row leading to one of the biggest backbench rebellions.

A U-turn on the policies from the Budget is not great for public finances but money is not the only thing that would hurt the Chancellor. The problem extends beyond the finances. The bigger issue lies with the damage to the brand and reputation and the political instability that such humiliation brings. Especially when all sorts of trouble is brewing, with the uncertainty around Brexit negotiations, uncertainty around the Scottish Independence referendum, and rebellion on other fronts to name a few.

The Chancellor does have a big black hole to fill with finances no longer adding up and a tax raid on pensions is looming to fill the £2billion deficit. However this in itself could have severe political consequences by hitting at the party’s core vote.

The overall reaction to this National Insurance debacle is that the government has lost its reputation and credibility and it will be a serious challenge for the Government to win round their critics especially in the wake of some big political decisions over the coming months that would shape the future of the people of United Kingdom.

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