An embattled Downing Street has stood by Chancellor Philip Hammond’s controversial increase to national insurance for the self-employed, insisting it has not broken a key Conservative manifesto pledge.
Mr Hammond ran a gauntlet of interviews yesterday to rejected accusations that the Tories lied when they promised “no increases in VAT, national insurance contributions or income tax” at the 2015 election.
Pressure was growing from the party’s own backbenchers, with one government minister saying ministers “should apologise” for the tax hike.
However, the Chancellor was offered some relief when two respected economic think-tanks backed the policy as a “progressive” way to raise additional revenue for the Treasury.
Mr Hammond said the 2 per cent increase over two years in Class 4 national insurance paid by the self-employed was necessary because Brexit meant “Britain’s circumstances have changed”.
The Chancellor said the tax, which adds an average £240 to bills those earning more than £16,250, was a “fair contribution” and partially closed the gap between contributions for self-employed and employees.
He added: “No Conservative likes to increase tax, but we also have to pay for our public services and we have to invest in Britain’s future.”
At least 18 Tory backbenchers publicly criticised the policy yesterday, and in the most embarrassing intervention for the government, Wales minister Guto Bebb told the BBC: “I believe we should apologise. I will apologise to every voter in Wales that read the Conservative manifesto in the 2015 election.”
Downing Street said it still had confidence in Mr Bebb despite his breach of collective responsibility.
“The Prime Minister and Chancellor have agreed on this Budget,” a Number 10 spokesman said. However, Downing Street appeared to leave the door open to a u-turn when the spokesman declined four times to say the tax rise would be implemented when asked.
But the Resolution Foundation think tank hailed the move as “welcome and progressive” for placing the greatest burden on the highest earners, while the influential Institute for Fiscal Studies said it would go only a “small fraction” of the way to redressing an imbalance in the tax system in favour of the self-employed.
Rather than criticising Mr Hammond, IFS director Paul Johnson said it was “foolish” of David Cameron to make his election promise not to raise them.
Instead, both organisations highlighted “dreadful” prospects for earnings, with the Resolution Foundation saying workers pay growth was at its slowest since the Napoleonic Wars, 210 years ago.
And the IFS said 600,000 three child families will be an average of £2,500 a year worse off once changes to welfare are taken into account.
“On current forecasts average earnings will be no higher in 2022 than they were in 2007,” Mr Johnson said. “Fifteen years without a pay rise. I’m rather lost for superlatives. This is completely unprecedented.”