“Since a politician never believes what he says, he is quite surprised to be taken at his word,” Charles de Gaulle once noted. Although the principle isn’t quite the same in this case, it would seem that Phillip Hammond might be quite surprised at the disappointed reaction to his announcement that Class 4 NIC payments for the self-employed will rise by 2% up to 11% by 2019.
Why the consternation? Hammond’s announcement is a direct volte-face of a previous Tory manifesto commitment made by his predecessor as Chancellor, George Osborne. In fact, as Chuka Umunna noted on Twitter during the Budget announcement, the 2015 Conservative manifesto promised four times not to raise National Insurance.
Whilst contractors and the self-employed have become used to punitive measures in the last few years, the latest announcement will do little to dispel the notion that Theresa May’s government either hasn’t recognised, or has simply ignored, the sterling contribution that the UK’s 4.8 million freelancers and contractors have made to the economy.
Given what was to come, there appeared to be some unintentional irony in the Chancellor’s opening gambit heralding “record employment”. “It is my ambition,” Hammond noted, “for the UK to be the best place to start and grow a business,” before going on to further penalise the very people who are most likely to make that happen. His justification for that 2% hike? “Employed and self-employed alike use our services in the same way but they don’t pay for them in the same way. It is not fair.”
Throughout his speech the Chancellor seemed to struggle to reconcile the apparent discrepancies in his rhetoric with the policies that followed. “There are many good reasons for choosing to be self-employed,” he noted at one point. “I will always encourage the innovators who are the lifeblood of our economy,” before going on to announce a 60% decrease in tax free dividend allowance from £5,000 to £2,000 by April 2018 (a measure he blamed on the Treasury believing that some small business owners pay themselves through dividends, and therefore pay less tax.) On a roll, Hammond also went on to partially attribute the rise in self-employment to tax avoidance, an issue which costs the government some £5bn a year.
As former Conservative politician Nick de Bois noted on Twitter during the Budget: “[The] self-employed [are] getting squeezed…on grounds of fairness. [It’s] worth remembering [they] have driven job growth and taken risks.” It was certainly a bold move from the Chancellor. As Sky News’ Political Editor Faisal Islam noted, the self-employed have been the “bedrock” of a minor jobs miracle since 2010. It seems to be an odd decision to put contractors and freelancers in the proverbial pillory, all for the sake of a relatively minor revenue raiser (just £145m a year.)
As Chris Bryce, the Chief Executive of IPSE, noted, it is absolutely right for the Chancellor to look at taxation of the self-employed. What is not right, however, is to do so before undertaking a thorough consultation with the business community. As Bryce notes:
“When you look at the additional support offered for business rates it appears as if the Chancellor is supporting SMEs by hitting entrepreneurs and the smallest of businesses.”
“[Hammond] shouldn’t forget that growth in self-employment has driven our labour market in recent years and punitive rises in tax will make many people have second thoughts about striking out on their own.”
What else? The promised £23bn investment in the tech sector was fleshed out further – a real boon for those involved in the IT and engineering industries in particular. £300m has been allocated to research talent, an amount that includes 1,000 PhD places for STEM subjects. A further £270m was apportioned to robotics, driverless cars and biotech, followed by a combined £216m investment in 5G mobile technology and fibre broadband.
Furthermore, although business rates aren’t being abolished as lobbied, no business losing small business rate relief will see their bill increase next year by more than £50 a month. A £300m fund for local councils to offer discretionary relief for hard-hit cases was also introduced.
The Chancellor also used the Budget to outline plans to help the ailing North Sea oil and gas industry. Mr. Hammond will investigate the use of tax incentives to make it easier for operators to sell oil and gas fields, helping to keep them productive for longer (a move the Treasury noted would further help a vital industry that meets around 50% of the UK’s primary energy needs.)
The upcoming public sector IR35 reforms were conspicuous by their absence, strongly suggesting that the government intends to stumble onwards toward 6th April regardless of the concern and confusion surrounding the changes.
However, as Brookson Group CEO Martin Hesketh wrote soon after the Budget, there might be light at the end of the tunnel. “Initially, this (the changes to National Insurance and dividend allowance) sounds like bad news but if this means that the Government are comfortable that this will raise sufficient revenue to remove the need to extend the IR35 changes being felt in the public sector into the private sector then [it] is a fair outcome.”
He continues: “I would hope that as the Government have now tackled false self-employment, travel and subsistence expenses, IR35 compliance in the public sector, abuse of the flat rate VAT scheme and tinkered with tax rates for the self-employed and limited company contractors it is time to leave the sector alone for the foreseeable future to get on with continuing to add value to the economy.”
So, what should we make of it all? On the upside, it’s unlikely that the self-employed have ever been referred to so many times in a Budget. On the downside, they were only so prevalent because they were taking a bit of a kicking – a state of affairs that has rather depressingly become the norm these days. Quelle surprise, as de Gaulle might once have said.