6 Reasons why Hammond is Right on NICs

In the 2017 Budget Chancellor Philip Hammond raised National Insurance payments for some self employed people…

…and then a week later withdrew the policy. However, I still support it, as do the Resolution Foundation, the Institute for Fiscal Studies, the CBI, the Financial Times…

The Chancellor has a problem that would be no different for Labour. The recent massive increase in self employment is bad news for the economy because it’s been about exploitation, not entrepreneurialism. As a result of big companies either insisting on self-employment in the ‘gig’ economy or even de-employing people (see UCATT’s recent report on this) some people’s rights are being restricted. But that’s not what Hammond’s change to NIC is all about.

Here are six reasons why the Tories were RIGHT to raise NIC for some self employed people and deserve Labour support:

– the big switch to (often bogus) self employment has cost government many millions in lost tax income because the Treasury no longer receives employer’s NIC (or higher employee’s NIC) from them

– last year the self employed got an automatic right to a state pension without being asked to contribute any more towards it

– most self employed people in the gig economy won’t be affected by the rise in NIC because their net earnings are under £16k

– a self employed person with a declared income of £16k probably has a real income of at least £20k because they can offset expenses against tax (which PAYE employees can’t)

– at 11% the self employed will still pay less NIC than employees (12%) (though yes, they have fewer entitlements) and they aren’t required to do auto-enrolment on pensions

– when Labour needed more money for the NHS we brought in a NIC rise with no controversy at all!

Self employment is very complex. It used to represent convenience for the artisan, opportunity for the entrepreneur, release for the hobbyist – no longer. Big business has benefitted from growing self employment because they reduce their NIC payments by outsourcing. Those obliged to go independent have seen their NI contributions fall even where headline pay is unchanged. Modern self employment raises huge challenges around benefits, training, career development and social mobility.

The Budget wasn’t about the rights of self employed people nor the abuse of the status, though they’re important. And nor (London colleagues please note) does any part of the tax system acknowledge London weighting. A review is looking at all these issues and I trust Matthew Taylor to consider them properly, not just in fiscal terms.

Labour’s challenge to the Budget should be about living standards, corporate taxation and Brexit impact. In particular, when the revised National Living Wage came in, only in 2016, it established that minimum wage legislation should raise the lowest paid up to the official poverty level by 2020 – this commitment was dropped in the 2017 Budget. The relatively minor adjustment on NICs is not where we should focus.

For the record, I’ve been self employed both as an individual and as a company.

The fact that the decision is a manifesto breach is incidental, a problem for the Tories, not for Labour; leaving the EU Single Market would be a bigger manifesto breach! It was a daft commitment but it’s what governments do. If Hammond argued ‘changed circumstances’ he’d be right. As the Institute for Fiscal Studies says, the NIC change is about tax justice.