IFS welcomes Hammond’s National Insurance hike

Philip Hammond’s controversial National Insurance hike for millions of self-employed workers has received the backing of a leading think tank.

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.

Some are already calling for a review merely 24 hours after the measure was unveiled.

But the Institute for Fiscal Studies said the system needed reform.

"A tax system which charges thousands of pounds more in tax for employees doing the same job as someone else needs reform," director Paul Johnson said.

"It distorts decisions, creates complexity and is unfair.

"The incentives for companies to claim that people who work for them are self-employed rather than employees are huge."

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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.

According to Mr Johnson, the move would close a "small fraction" of the gap with the contributions paid by employees.

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.

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But 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.

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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."

Iain Duncan Smith, the former work and pensions secretary, has added his voice to the criticism and called for a review. Other Conservatives worry the measure may alienate core Tory voters.

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."

(c) Sky News 2017: IFS welcomes Hammond’s National Insurance hike