A rise in Class 4 national insurance contributions (NICs) paid by self-employed people was amongst the measures announced by Chancellor Philip Hammond in the Budget on Wednesday.
Hammond said that the rate for Class 4 NICS would rise from 9% to 10% in April 2018. It will go up again, to 11%, in 2019. Employees currently pay national insurance at a rate of 12%.
In his Budget speech, Hammond pointed out that an employee who earns £32,000 a year will pay £6,170 in NICs, while a self-employed worker on the same salary pays just £2,300.
He claimed that “such dramatically different treatment of two people earning essentially the same undermines the fairness of our tax system”.
Self-employed people have traditionally paid lower NICS than employees because they received fewer state benefits.
But the Chancellor said that the difference in NICs was “no longer justified”, arguing that the self-employed now had equal access to the new state pension.
Commentators noted that the decision goes against the Conservatives’ election manifesto promise, which committed the Government to “no increases in VAT, Income Tax or National Insurance”.
The increase will cost those affected an average of 60p a week.
However, those earning less than £16,250 will be better off because of a planned abolition of of a different class of NICs, Class 2, in April 2018.
Think tank the Resolution Foundation said this week that “the real debate about tax and the self-employed lies not in the National Insurance individuals directly pay but with the fact that firms pay 13.8% employer National Insurance for everyone they employ, but nothing if they use self-employed labour”.