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Judging Hammond’s U-Turn

Was the Chancellor of the Exchequer right to abandon increasing the tax on the self-employed?

 

In March, Philip Hammond’s budget proposed raising the National Insurance Contribution (NIC) rate on self-employment. The details were this: Class 4 NICs would rise from 9p to 11p on every £ earned up to £45,000. Class 4 rates applying to the self-employed who earned more than £8,164 in profits annually (Class 2 NIC’s are much lower and apply to those earning between £6,025 and £8,164).

The later decision to pull-back from this commitment, after it became apparent that a majority of Conservative MPs would not back the rise in Parliament, was considered to seriously undermine the Cabinet’s credibility before Brexit. Clearly, a political mistake had been made. There had been a prior commitment not to raise NICs — the NIC rise was a U-turn which was subsequently abandoned. A double U-turn, if you will. But what were the economic merits of the decision?

 

 

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