Did Philip Hammond really break an election pledge with NI hike?

Philip Hammond's plans for National Insurance were the most contentious aspect of his budget

Philip Hammond's Budget has received huge criticism, centring on his plan to increase National Insurance

Friday, March 10, 2017

fullfact.org, an independent fact-checking charity set up to investigate the truth behind the big news of the day, has produced this analysis of the Conservative's flagship Budget measure. 

This article, reproduced with their consent, shows the complexity of the issue.

As you’ll probably have seen, the Chancellor has announced plans in the spring budget for the rate of National Insurance contributions paid by self-employed people to increase from 9% to 10% in April 2018 and then to 11% in 2019. Since then, both the media and opposition politicians have accused the Government of breaking one of its manifesto pledges.

The Conservative manifesto for the 2015 general election promised not to increase National Insurance rates before 2020. It was only the legislation introduced to enforce this pledge that restricted this to employees.

The manifesto vs the budget

In its manifesto for the 2015 election the Conservative party said “a Conservative Government will not increase the rates of VAT, Income Tax or National Insurance in the next Parliament.” It repeated this position three more times in the document.

But the Chancellor’s speech for the 2017 spring budget announced that the main rate of Class 4 National Insurance Contributions for the self-employed would increase in 2018 and 2019.

There are four classes of national insurance contribution. Class 1 is paid by employed people, Class 2 is a flat rate paid by self-employed people who make over roughly £6,000 in profit a year. This class will be abolished in 2018. Class 3 is paid voluntarily to top up any gaps you might have had in paying national insurance and Class 4 is paid by self-employed people on any profit over about £8,000.

The reason given by the Chancellor for the change to Class 4 was that:

“Historically, the differences in NICs [National Insurance Contributions] between those in employment and the self-employed reflected differences in state pensions and contributory welfare benefits. But with the introduction of the new state pension, these differences have been very substantially reduced…

“The lower National Insurance paid by the self-employed is forecast to cost our public finances over £5 billion this year alone. That is not fair to the 85% of workers who are employees. The abolition of Class 2 NICs for self-employed people…would further increase the gap between employment and self-employment… from April 2018, when the Class 2 NIC is abolished, the main rate of Class 4 NICs for the self-employed will increase by 1% to 10%, with a further 1% increase in April 2019.”

The Chancellor went on to say that these changes would raise £145 million a year for the Treasury by 2021/22 and would still mean that self-employed people earning less than £16,250 a year will see their National Insurance contributions reduced. The Institute for Fiscal Studies has said £15,570 - we’re looking into why this is.

The Chancellor’s argument has received some sympathy from experts like the Institute for Fiscal Studies, which has said that “the difference in access to benefits is nowhere near enough to account for the NICs difference” and has referred to the new change as “a modest but welcome change”.

So, was it a broken promise?

Well, the 2015 Conservative manifesto didn’t specify whether it was only referring to certain types of National Insurance.

But the Chancellor told ITV’s Good Morning Britain that the Conservatives “dealt with this issue back in 2015 when we legislated for the tax locks that we talked about during the election campaign. We introduced them into Parliament, we debated them then, we had a proper discussion about what the extent of these locks and ring-fences were and we put it all into legislation”.

The legislation Mr Hammond is referring to ensured that the main rate of National Insurance contributions paid by employers and employees, or Class 1, couldn’t change from its 2015/16 rate. But the law makes no mention of the National Insurance rates paid by self-employed people, Class 2 and 4.

Ultimately, nothing that has happened since the election changes the fact that the Government is not doing what it told voters it would do in its manifesto.

To read more from fullfact.org or find out how you can donate, visit the website here.